Erik Milito's remarks at press briefing on Pathway to Continued Energy Prosperity
Erik Milito, API group director, upstream and industry operations
Thursday, February 4, 2016
Good morning everyone. Thanks for calling in.
The compelling story of the U.S. energy renaissance has been retold time and again, yet it continues to amaze. Just a few years ago the U.S. was counted out as an oil and natural gas superpower, but we defied the odds to become the world’s largest producer of natural gas and a world leader in crude production. Our energy renaissance has been led by shale energy development, extracting oil and gas from rocks at a scale and efficiency level that was unthinkable not long ago.
The shale resurgence has been a uniquely American story for many reasons, including American engineering and ingenuity, production and transportation infrastructure, private mineral ownership, sanctity of contracts, and regulatory and legal certainty in the areas where we have seen increased domestic production of oil and gas resources. It is truly the free market model at work, driving innovation in ways that were unforeseen but not all that surprising given the ability of the U.S. worker.
The U.S. oil and natural gas industry is a case study for how we can grow our economy, create jobs, and protect the environment through market-driven innovation.
In the president’s budget due out next week, it would be refreshing to see polices that embrace and promote our proven market-based approach – an approach that has created the current energy reality. According to the U.S. Energy Information Administration, oil and natural gas will supply about 60 percent of the energy we use for several decades ahead. It’s a future the United States can meet confidently because we have abundant, reliable, and affordable supplies of oil and natural gas. With our abundant resources, we must not miss this opportunity of a lifetime to strengthen our national security and help our allies abroad. The industry is certainly experiencing challenging times, but this makes smart energy policy all the more important to fully realize our energy potential
By continuing to rely on industry innovation, basing decisions on sound science and providing for oil and gas energy opportunities, we can build on the success of the past decade.
First, we must continue to embrace industry innovation. Industry innovation has been the driving force behind our energy revolution. Technology has made the difference in allowing the industry to produce the oil and natural gas we rely on in our daily lives, while at the same time providing environmental benefits. Natural gas produces half the carbon emissions as other sources and virtually no hazardous air pollutants. Vast supplies of clean, affordable natural gas unleashed by hydraulic fracturing have allowed gas to generate much more of American’s electricity. In other words, were it not for hydraulic fracturing, our carbon emissions would be much higher. Consumers also have benefited through lower cost gasoline at the pump, and lower cost natural gas for home heating and electricity. Globally, the U.S. has much greater leverage in the world because production of oil and gas here at home has effectively diminished the ability of countries like Russia and Iran to use energy as a geopolitical tool.
From 2005-2013, during one of the largest increases in oil and natural gas production in American history, methane emissions from hydraulically fractured natural gas wells decreased by about 80 percent, emissions from natural gas production decreased by about 38 percent and total methane emissions decreased by about 11 percent, according to EPA data. These data clearly demonstrate the industry’s leadership in innovating and applying advanced technologies to reduce emissions. And let me point out that these technologies were developed and advanced before EPA proposed its regulations. Methane is the primary component of natural gas – a product we sell – and companies are incentivized to capture as much methane as possible so that it can be delivered to customers. The data show that companies are doing just that.
Despite the fact that methane emissions are being greatly reduced, we now see both EPA and the BLM moving forward to regulate methane in ways that do not provide tangible benefits but could actually hinder our country’s ability to develop oil and natural gas, as well as our ability to be a leader in innovating technologies. The industry has developed technologies to reduce emissions from hydraulic fracturing completions, equipment to phase-out high-bleed pneumatic controllers, technologies to reduce emissions from storage tanks, and methods for detecting leaks. All of these have occurred outside of the regulatory process. Unfortunately, the EPA and BLM rules overlap, and also duplicate, state regulations.
The industry has been a leader in advancing innovative technologies, and also in the proactive development of industry standards. API has developed more than 600 standards through a process that is accredited by the American National Standards Institute. The process allows experts from industry, the government, and engineering and safety companies to work together and develop consensus best practices. The government, in turn, is able to rely on these documents to assess operations and to regulate by incorporating API standards into regulations. This approach is followed in many industries, not just ours. Offshore energy development is a perfect example of how innovation and standards development have combined to enhance the safety in operations. This is true in API Standard 53, which is the document that governs blowout prevention equipment systems. The development of this standard brought together the experts from the industry and government regulators. Unfortunately, the Bureau of Safety and Environmental Enforcement has proposed a Well Control Rule that goes well outside the scope of API Standard 53, and could create unintended safety consequences and lead to a decline in offshore oil production.
Rather than a rush to regulate, the government should drive to innovate. The prescriptive types of regulations being advanced by EPA, BLM and BSEE could stifle innovation by locking in specific types of technologies through the regulatory process.
A second important way the administration and policy makers can embrace the successful free-market approach is to base decisions on sound science. This is an issue in both the onshore and offshore contexts.
Earlier this week, I was one of several people speaking for the oil and natural gas industry during another meeting with the EPA’s Science Advisory Board (the SAB), yet again addressing the mountain of scientific evidence showing that the hydraulic fracturing process is safe. This conclusion was most recently supported by EPA’s multi-million dollar and half decade long study, showing that the hydraulic fracturing process has not led to widespread, systemic impacts on drinking water resources.
Regardless, the SAB is hearing arguments that cut against the science. These arguments ignore the credible and abundant science demonstrating that hydraulic fracturing is safe. Interestingly enough, the U.S. Department of Energy has identified hydraulic fracturing as an advanced technology that provides environmental benefits and protects groundwater. After 65 years and two million wells, the evidence and science are credible and clear. The data and facts overwhelmingly support the conclusion that hydraulic fracturing can be done safely. We need to ensure that our government processes stick to the credible science.
On the offshore side, the Bureau of Ocean Energy Management has stated repeatedly that it intends to move forward with permitting for offshore seismic surveys in the Atlantic. However, over the past several years not one permit has been issued and not one boat has been able to go out in the Atlantic to safely perform this important research. The government’s own offshore chief environmental officer has said that “there has been no documented scientific evidence of noise from air guns used in geological and geophysical seismic activities adversely affecting marine animal populations. This technology has been used for more than 30 years around the world.” The science is clear. Let’s see polices based upon the science, and let’s see permits and boats on the water.
And third, the government can also embrace a free market approach to energy is by allowing opportunities for exploration and development. We have seen the difference that access to resources can make. Most of today’s production increases stem from projects that started before this administration came into office, and most of it is happening on state and private lands. The number of drilling permits issued on federally controlled onshore land dropped by 43 percent from 2008 - 2014, according to BLM. Federal data also show crude oil production stayed flat between 2009 - 2014 on federally controlled land while natural gas production declined 35 percent. By contrast, on private and state lands, production increased 88 percent for crude and 43 percent for natural gas.
Today, 87 percent of all federally controlled offshore acreage – including much of the Atlantic, Eastern Gulf of Mexico and Pacific regions – is off-limits to offshore oil and gas development. Expanding access in the federal government’s next five year offshore leasing program could generate significant economic and energy security benefits. We saw a positive bipartisan policy proposal under consideration in the Senate yesterday that would provide revenue sharing to coastal states where offshore oil and gas development occurs. Policies like this are essential for our long-term energy security.
And we need a concerted effort to improve U.S. infrastructure. Rather than developing prescriptive methane rules that could stifle innovation, the BLM should focus on fixing permitting, infrastructure and pipeline delays that slow our ability to capture more natural gas and get it to consumers, particularly in the Northeast with projects like the Colonial pipeline. Lack of pipeline investment is the reason why the Northeast pays an average of 68 percent higher rates for energy than the rest of the country. If there were pipelines to deliver the energy efficiently, it would save consumers a lot of money.
Congress understands this opportunity. This week, the Senate is on the right track as it debates a comprehensive and bipartisan energy bill that seeks to advance the successes achieved in the U.S. by ensuring that natural gas pipelines are permitted more efficiently, providing a streamlined process for LNG exports, and fostering greater diversity in the energy and manufacturing industries.
Smart energy policy is imperative for the continued success of this market-based model. Our model doesn’t stifle American investment with overregulation or a one-size-fits-all approach to federal rulemaking. Instead, it allows for the free market and innovation to thrive. Let’s allow these proven market-driven initiatives to continue reducing carbon emissions without risking our economy and American jobs.
Thank you. I’d be happy to take your questions.