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Jack Gerard's remarks at the 2016 USEA State of the Energy Industry Forum

As prepared for delivery

Jack N. Gerard
2016 USEA State of the Energy Industry Forum
January 21, 2016

Good afternoon and thank you Barry for the kind introduction and for hosting this important forum, which provides an opportunity for leaders across the energy spectrum to share our industries' thoughts on the future energy realities for America.

As you may have heard, 2016 is an election year. Who we choose this November to lead us, at all levels of government, will be critical to whether this nation sustains its role as global energy leader or not.

Our policy priorities, whether we choose to continue to lead on energy, or go back to previous decades of energy scarcity, will have clear implications for our nation's economy and national security, and for American families.

The good news is we don’t have to guess at what works, because we know what works, because it is today’s reality. Just a few years ago most opinion leaders were encouraging low energy economies, and restricted energy choices, because it was accepted that increasing energy production -- particularly production of fossil fuels -- was not compatible with protecting the environment.

Yet the next president of the United States will inherit a country with a growing population and a growing economy, with record production of U.S. oil and natural gas, and at the same time, EPA reports declining emissions of criteria air pollutants and near 20-year lows in greenhouse gas emissions ... All thanks to what we like to call "the U.S. Model."

It is a market-driven, consumer-focused approach to energy policy that benefits our nation’s economy, the environment and energy users here and around the world. And it recognizes that market forces, driven by consumer preferences, are far better able to achieve our nation’s energy, climate and economic goals than government mandates and regulatory dictates.

We should also be mindful that the policies we put into place in this country can have immediate and positive benefits for our allies thousands of miles away. For example, mere days after the U.S. Congress lifted the 40-year ban on crude oil export, shipments of domestically produced crude left our shores and entered the global energy market a fundamental reordering of the world energy market. As a result, for the first time in four decades, our allies and the world have another option to help meet their energy needs.

And even as the oil and natural gas industry undergoes a market realignment brought about by a vast, new supply of oil and natural gas, fundamentally the industry is strong and the long-term prospects remain positive.

But to sustain and build on our nation’s positive energy trajectory our energy policies should foster -- or at least not hinder -- America’s ability to explore, develop, transport and deliver to consumers the energy they need to heat their homes, run their businesses and enjoy their lives.

Just as we know what is working, the U.S. Model, we also know that the contrary vision, energy policies that constrain energy production, distribution and use will cost our nation’s economy and consumers billions of dollars over the next several decades.
A point that is made clear by a study last year by Wood Mackenzie that found that national energy policies that discourage energy development and constrain U.S. refiners could lead to a cumulative decrease of $500 billion in government revenue from 2016 to 2035 and increase by $242 the cost of energy annually for the average household.

With the right energy policies, America’s oil and natural gas industry could support as many as an additional 1 million American jobs in 2025 and as many as 2.3 million by 2030.

And, in addition, the study found that pro-development policies could increase local, state and federal government revenue by more than $1 trillion; lower average annual household energy expenses by approximately $360 by 2035 and boost household discretionary income by as much as $508 billion cumulatively over the next 20 years; all of which makes clear that policy matters when it comes to energy and makes a difference to consumers and our nation’s economy.

Here are four quick examples.

First the Renewable Fuel standard; a good example of the lag between market reality and government regulation and the disconnect between legislative mandate and consumer preference. Written at a time of energy scarcity and dependence on foreign sources of oil, the RFS is a relic of our nation’s energy past and should be immediately repealed or significantly amended. EPA’s continued push of the RFS -- heedless of the consequences to our nation’s economy, the preferences of consumers or today’s market reality -- simply ignores the facts.

When it comes to fuel choice, consumers have spoken and it isn’t in favor of high-ethanol blend fuels. According to the EIA, the annual amount of E85 sold in 2014 is less than one percent of annual gasoline demand.

What’s more, a 2014 Congressional Budget Office study projected that the RFS could raise the cost of fuel for consumers because “Given the design of the RFS, the cost of encouraging additional sales of high-ethanol fuel falls on the producers and consumers of gasoline and diesel.”

In short, th RFS is a bad policy that needs to be ended or substantially amended to reflect the current state of American energy.

Another example is the Clean Power Plan that attempts to tilt the scale of the energy markets not based on market conditions, consumer preference or economic reality, but instead as a means to further a particular political ideology.

Their goal is to replace an all-of-the-above national energy strategy, with a national keep-it-in-the-ground energy policy, all in the name of protecting the climate that is unrealistic and unworkable.

The Clean Power Plan overlooks the success record of domestic natural gas -- which has lowered electricity prices, reduced our carbon emissions, and positioned the U.S. as a global energy leader ... thanks to innovations in hydraulic fracturing as a result of the oil and natural gas industry’s entrepreneurial spirit and market demand -- in favor of renewable energy sources. If implemented as written the Clean Power Plan has the potential to increase energy cost for consumers.

Just last week, during his final State of the Union address, President Obama touted the nation’s decreasing greenhouse gas emissions, saying in part “[we’ve cut] carbon pollution more than any other country on Earth.” That’s true but not because of command and control style regulations.

What’s produced our nation’s world leading reduction in greenhouse gas emissions is the greater use of natural gas in power generation. Paradoxically, when the Clean Power Plan was released last summer, the White House talking points bragged, “the rush to natural gas is eliminated,” presumably as a way to promote their preferred energy sources.

Here are the facts.

Fact: In 2015, for the first time there were several months in which natural gas produced more electricity than any other fuel source.

Fact: That period also saw the lowest carbon emissions from the power sector.

Fact: Far from reducing opportunity for wind and solar power, natural gas provides a reliable and necessary base load power supply needed to integrate those intermittent sources.

Because it falls to the states and electric utilities to provide clean, reliable and affordable energy, natural gas will continue to provide all three, with or without the Clean Power Plan.

And here is one more fact: The U.S. Model has already gotten us one-third of the way to the emissions reductions sought by the Paris Climate agreement, again, largely through market forces, not government regulation.

Nationally, according to EPA, in 2013 greenhouse-gas emissions were 9 percent below 2005. Under the agreement in Paris the United States is expected to cut its carbon emission levels between 26 percent and 28 percent below 2005 levels by 2025.

Unfortunately there are some who are still mired in the mindset of the past, rooted in energy scarcity that continues to think of energy policy in binary terms: more energy production, distribution and consumption must mean a dirtier environment.

We know that is no longer true.

A prime example is, of course, the Keystone XL pipeline, which was rejected not based on what’s best for America’s energy future and consumers but because of political ideology.

The president said in part “America is now a global leader when it comes to taking serious action to fight climate change. And frankly, approving this project would have undercut that global leadership.” While the first part of that statement is true and we agree America is a global leader.

The second part of the statement is untrue and contradicted by an analysis conducted by President Obama’s State Department that found that carbon emissions would rise because of increased truck, rail and barge traffic needed to transport energy to Gulf Coast oil refiners.

It is clear and unfortunate that the KXL decision ignores the fact that the pipeline would strengthen ties to one of our closest allies Canada and would have created thousands of well-paying jobs over its lifetime and generated millions in local, state and federal tax revenues.

According to an IHS study, the amount of energy sector infrastructure needed through the middle of the next decade could spur $1.15 trillion in private capital investment. IHS also projects that infrastructure investment could support more than 1.1 million jobs nationally, contribute $120 billion to U.S. gross domestic product and increase revenues to government by more than $27 billion through 2025.

More broadly, the coordinated and disingenuous campaign against the Keystone XL pipeline and the heavy politicization of the permitting process of a privately funded infrastructure project could have a chilling effect on future investments in our nation’s energy infrastructure because investors will always wonder if their project will be become the next rallying cry for fossil fuel critics.

And perhaps the most serious threat to our nation’s long-term ability to fulfill its full energy potential is the difference between access to our nation’s energy resources on federal land as opposed to state and private land.

Today, less than 10 percent of BLM’s federally managed surface and mineral estate is currently leased for oil and natural gas development. And on lands administered by BLM and leased to energy companies, only a fraction of the total acreage under lease is occupied by surface operations for exploration or production – about 1 percent.

Between 2010 and 2014, the percentage of the nation’s crude oil produced on federal land decreased from 36.4 percent to 21.4 percent. According to the Bureau of Land Management, the number of drilling permits issued on federally controlled onshore land dropped by 43 percent from 2008 to 2014.

Further, federal data show crude oil production remained flat between 2009 and 2014 on federally controlled land while natural gas production declined 35 percent.

In contrast, on private and state lands, where development does not need permission from the federal government, production increased 88 percent for crude and 43 percent for natural gas from 2008 to 2014.

Also, the glaring difference between production on federal land and state and private land isn’t just bad energy policy; it’s also bad fiscal policy. If production on federal lands had grown at the same rate as overall US production, from 2009 through 2014, total royalties would have been 22 percent higher, with an additional $11.0 billion in royalties collected by the federal government

This stark difference isn’t due to geology. It is due to a political ideology that ignores the important, foundational role of fossil fuels to our modern society, and I would suggest that point of view should be consigned to the history books, not imposed on the American consumer.

As I said a few moments ago, we know what to do. The ongoing success of the U.S. Model proves that we can grow our economy, provide consumers with abundant lower cost energy, improve our environment and lead the world in energy production, all, by the way, while fighting the headwinds of almost 100 federal regulations that thwart American energy production.

But let’s not forget that this is about more than energy policy; this is about people’s livelihoods. It is about the ability of millions of women and men to put food on their family’s table. Heat their homes. And operate their businesses. This about what type of nation we leave future generations.

The choice before us, beyond even the next election or the next several elections, is whether our nation chooses the path of energy leadership, and affordable, reliable and abundant energy or falls back to the 20th century energy reality of energy dependence, scarcity and uncertainty.

That is one of the most important national discussions of our time, and it should be fact-based because energy policy is too important to be yet another partisan talking point or a political weapon used to distract rather than inform.

As we look ahead to the 2016 election, it is our view that no matter who controls Congress, the White House, governorships and state legislatures our focus will remain on ensuring that our nation takes fuller advantage of its bright energy future regardless of party affiliation or region.

The U.S. Model proves that we can achieve what were once thought to be contradictory goals, if the markets are allowed to work and the voices of America’s consumers are heard by those who make energy policy.

And just as those who don’t know history are doomed to repeat it, those who don’t recognize the contributions of the American energy revolution are likely to undermine it.

The assumption that energy production and emissions reductions are mutually exclusive has been rendered obsolete by the facts, and policies based on this flawed idea are likely to damage the economy and raise consumer costs.

If we are to continue our nation’s current positive energy production trends and environmental gains, we must demand that those who act on our behalf, at all levels of government, implement energy policies that promote a brighter, better American energy future based on current market conditions and our potential as a global energy leader.

API’s position is that being the world’s number one oil and natural gas producer and world leader in reducing greenhouse gas emissions requires that we get our nation’s energy policy right today.

It is also our position that energy policy isn’t a Democrat vs. Republican, liberal or conservative issue. We believe it is a job growth, economic opportunity and American global energy leadership issue.

Our shared goal should be to create a new American understanding of energy -- and with it a national energy policy -- based on science, the free market and entrepreneurial spirit because energy is too important and fundamental to our way of life for anything less than our collective best efforts to that end.

Thank you for your time.

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