Mulva: Industry must ‘act with courage and forethought’ on energy

James J. Mulva

He noted that existing fields and refineries have been pushed to near-maximum capacity to keep up with demand, which has cut surplus capacity to a level below what is needed to offset major disruptions. Most of the world’s new oil and gas resources will come from countries with political beliefs and economic situations different from those in the US, he cautioned.

“So the available supplies of potential imports may not be as large as we would like. And to buy these imports, we will have to compete for them price-wise in the world market,” he said.

Costs rising

Costs to develop new oil and gas supplies are climbing as prices for labor, equipment, and materials increase and energy prospects are more challenging, Mulva said. Increased environmental regulation, much of which is worthwhile, also adds to costs, he added.

“Meanwhile, US policies have actually undermined energy security by restricting access to new areas while doing nothing meaningful to promote energy conservation. As a result, the US now imports 60% of its oil. Natural gas imports are also growing,” Mulva said.

Recent congressional actions punish the energy industry instead of solving problems, he maintained. “One proposal would cap gasoline prices during emergencies. But in the past, we have seen that temporarily higher prices help attract supplies from elsewhere and reduce demand. This restores the supply-demand balance, and prices then go back down,” he said.

Mulva also criticized proposals to tax domestic production or impose new levies on major oil companies. Both would reduce investments, he warned.

And a bill that would make foreign oil producers subject to US antitrust law is “an appeal to nationalism that is the opposite of what we should be doing, which is working together to encourage production,” he added.

He also expressed concern that some lawmakers won’t acknowledge that oil, gas, and coal will be needed while biofuel and other renewable alternatives are being developed. “Unfortunately, some of the proposed legislation, such as further restricting drilling access would make the current situation worse.” Mulva said. “There also is too much that it would not do, such as clear the permitting roadblocks we face in trying to build infrastructure or do enough to reduce demand growth.”

Diversification

Of his four broad recommendations, he went into the greatest detail about diversifying energy sources, which he said must start by encouraging more domestic development of both conventional and unconventional resources.

He suggested that the US could add about 80 billion bbl of recoverable oil and natural gas to its reserves by allowing drilling in areas presently off-limits. “Critics always claim that, since one area or another offer only a few months or years of supply, it should not be developed. My response to that is: ‘Why transfer $4.4 trillion of potential national wealth-the market value of these resources-to other countries through resources?’ We could instead keep that money at home and gainfully employ thousands of Americas,” Mulva said.

The industry should also be willing and prepared to meet environmental standards if new areas are opened, he continued. “Industry technology and operating practices have made quantum leaps in the years since these moratoria were first enacted. Our national vulnerability no longer allows us the luxury of ignoring so much energy potential,” he maintained.

Meanwhile, the process for obtaining permits to build critical infrastructure such as LNG terminals, additional refining capacity, and electric power lines must be improved, he said. “Where infrastructure is clearly needed to serve the national interest, federal pre-eminence is needed over local or special interests,” he said.

Mulva said the excitement over biofuels’ potential is justified and that corn-based ethanol, of which the oil industry already uses 6 billion gal/year, is a good start. He said he supports the US Senate’s proposal to mandate the use of 15 billion gal/year but maintained that the market should determine where certain concentrations are desirable, such as E-85 in the Midwest for flex-fuel vehicles.

Carbon intensity

To lower carbon intensity, the second of his four recommendations, Mulva said the US should establish a baseline with a system of incentives and penalties. “The first step would be to create a mandatory framework that would lower our greenhouse gas emissions, and set a price for carbon avoidance. This could be done by either a tax or a cap-and-trade system. We should also [have] incentives for development of carbon capture and sequestration. This would allow us to use our domestic fossil fuels, such as coal and oil shale, while protecting the environment,” he said.

Use of solar, wind, and other renewable technologies could be expanded by extending their investment tax credits 5 years at a time, he continued. Mulva also said more nuclear power should be developed, and the government should both meet its commitment to dispose of waste from such plans and sponsor research into technology to use nuclear fuel more completely while reducing waste and proliferation risks.

His third recommendation, increasing energy efficiency, is the most effective way to reduce the US carbon footprint, stretch supplies, and improve energy security, he said. In the transportation sector, this could involve improving overall fuel efficiency by encouraging the development of new technology and encouraging purchases of more-efficient vehicles by offering a rebate while placing a tax on less-efficient models.

Mulva said encouraging investment in new technologies, his fourth recommendation, is necessary to maximize recovery of conventional resources, successfully operate more-complex projects in harsher environments, and improve environmental performance. “Better technologies will also allow us to develop new alternative and unconventional sources, and enable us to lower our carbon intensity and improve the efficiency of energy use across the entire economy,” he said.