Bodman addresses competitive issues at NPC meeting

June 22, 2005
A growing worldwide economy has accelerated energy demand, pushed prices higher, and intensified competition for resources, Energy Sec. Samuel W. Bodman said June 22.

Nick Snow
Washington Correspondent

WASHINGTON, DC, June 22 -- A growing worldwide economy has accelerated energy demand, pushed prices higher, and intensified competition for resources, Energy Sec. Samuel W. Bodman said June 22.

"Other countries are growing more competitive. The Department of Energy's role is to work with them to have a level playing field and make sure that rules and decisions are transparent. That can be tough because they view oil and gas assets differently than we do," he told the National Petroleum Council.

But Bodman said the administration of US President George W. Bush considers it vital for Russia and other countries to recognize the sanctity of contracts if they expect to attract US producers to help develop their oil and gas resources.

"The importance of a secure investment climate, including guarantees and a stable legal environment, cannot be overstated. It's hard to imagine that anyone would invest billions of dollars without these guarantees," he maintained.

Bodman said that both Bush and his Russian counterpart, Vladimir Putin, asked him to help revive energy partnerships between the two countries.

"To date, I have been disappointed by the response of those in Moscow to our efforts, and I have delivered that message," Bodman said. "But there is progress being made in eastern and central Europe." He said this would be part of a report he will submit to Bush by the end of June.

High oil and gas prices reflect heavier demand created by growing economies, he emphasized.

"The gap between demand and the industry's ability to respond will take some time to close. I think that will involve years instead of months," Bodman said.

He acknowledged that Chinese oil companies are searching the world for oil supplies but said the Bush administration is not yet concerned that Chinese National Offshore Oil Corp. affiliate CNOOC Ltd. might try to trump Chevron Corp.'s offer to buy Unocal Corp.

A serious offer by a foreign national oil company for a US independent producer, Bodman said, would trigger a governmental review by the Committee on Foreign Investments in the United States (CFIUS) in which the State, Treasury, Commerce, Defense and other federal departments would evaluate potential impacts.

"I've lived in this briar patch before," he said. "It's a long and complicated process that tries to address a broad range of questions. I know better than try to predicts its outcome."

Bodman said he looks forward to putting council members to work on their next study but has not decided which area needs to be addressed.

Oil product prices currently are the biggest public issue, he observed.

"In addition to developing more sophisticated refining, we also will need to address the environmental impacts of processing increasingly heavy crudes," he said.

Asked if he sees any possibility that US offshore drilling could expand beyond Alaska and the central and western Gulf of Mexico, Bodman replied that the Bush administration intends to honor its presidential campaign promise not to allow oil and gas activity in the eastern gulf. But he added that the White House might take a second look at that commitment if Congress and coastal states offer their own ideas.

He specifically mentioned Sen. Mary L. Landrieu (D-La.) and her proposals during Senate energy debates to let coastal states opt out of moratoriums in exchange for shares of revenue from federal offshore leases and a greater say in their operations.

"I have to say that the idea generated a lot of interest among various members of the administration," Bodman said. "I think we're starting to see economics have an impact.

"If the states take the initiative, that relieves pressure on the administration to keep promises it made during the campaign. Certainly, prices are higher now than they were then, and that's having an effect."

He continued, "It's a little like Russia: I don't see much progress yet, but I'm somewhat optimistic."

The meeting was the last at which Burlington Resources Inc. Chief Executive Bobby S. Shackouls presided as the council's chairman. In an interview following the meeting, he said the council's efforts are reflected in energy legislation currently before Congress.

"It's important that we get something out this time and that it doesn't die as it has in the past," Shackouls said. "Because of our studies and what they highlight, people have begun to recognize, for example, that government policies impede natural gas development on one hand and encourage its consumption on the other. I think we're beginning to see that contradiction addressed in this energy bill."

Exxon Mobil Corp. Chief Executive Lee R. Raymond, who has been the NPC's vice-chairman, will succeed Shackouls as the council's leader. Richard D. Kinder, chief executive of Kinder Morgan Inc., was elected vice-chairman.

Contact Nick Snow at [email protected].