Mulva: US should pursue comprehensive energy strategy

Broader economic problems should not keep the US from pursuing comprehensive energy and environmental strategies, according to ConocoPhillips Chief Executive Officer James J. Mulva.

Nick Snow
Washington Editor

WASHINGTON, DC, Jan. 14 -- Broader economic problems should not keep the US from pursuing comprehensive energy and environmental strategies, according to ConocoPhillips Chief Executive Officer James J. Mulva.

"A year or 6 months ago, with gasoline prices triple what they are today, energy security was on the A-list of vital issues. So was climate change," Mulva told a luncheon audience Jan. 13 at the National Press Club. "Now, they have taken a back seat, replaced by new challenges," he said.

"But complex issues are often interrelated. For example, by restricting energy development at home, we export dollars for oil imports which means we also export jobs. The trade balance worsens. The dollar weakens. Government tax revenues fall. Otherwise minor geopolitical events in oil producing regions become urgent strategic threats," Mulva said.

President-elect Barack H. Obama's plan to create a Green Energy Economy makes long-term strategic, environmental, and economic sense, Mulva noted, adding that policymakers should be realistic about green energy's costs and the time it will take to develop these technologies.

"Our economy requires readily available energy today, not just the promise of it 10 or 20 years from now. This energy must be reasonably and competitively priced when compared to energy costs in other countries. Finally, we must avoid inadvertently creating unattainable public expectations. An energy transition will not occur overnight, at little cost and with no inconvenience," the executive said.

Four principles
Mulva said a comprehensive US energy and environmental policy should incorporate four principles: broadly diverse supplies, greater energy efficiency, technological innovation, and sound environmental stewardship, including addressing climate change.

"ConocoPhillips strongly supports development of alternative and renewable sources such as solar, wind, and geothermal power, biofuels and others. But…we also need more fossil fuels (oil, natural gas, and coal) as well as nuclear power. Alternative energy cannot come online fast enough at the scale required to replace these sources, not for decades to come. So the US must encourage more domestic oil and natural gas development. It could easily do so by opening for exploration some of the promising areas that are now off-limits. The public overwhelmingly agrees," he said.

A comprehensive US energy and environmental policy also should encourage development of nontraditional fossil fuels such as oil sands, oil shale, and gas hydrates, according to Mulva. Canada's oil sands are one of the world's largest hydrocarbon deposits, holding more than eight times current US reserves, and new technology could increase available volumes, he said.

"The US is the logical market for this oil. It already flows to refineries in the Midwest for processing. It creates domestic jobs, generates income and tax revenue, and increases regional fuel supplies. But there are some who want to stop this oil from coming here. They object to its carbon intensity and the impact of development," Mulva said.

"Canada and its citizens have already weighed the pros and cons. They are devising environmental standards that will account for the resulting greenhouse gas emissions. So the oil sands will be developed. Either we can bring this oil here to the US from a secure and friendly source, or watch it go to other countries instead," he said.

Energy efficiency
Improving US energy efficiency also is an important element of a comprehensive policy, the executive said. While the US has doubled its economic output per unit of energy consumed since the 1970s, it can still do more, he noted.

"This past summer, when gasoline prices went past $4/gal, the issue was supply. One of the best ways to address this question is to use less, which also has a positive impact on global climate change," Mulva said.

Any major new policy also will need to encourage energy research and development, he said. The oil and gas industry already is making substantial investments and the government can encourage further R&D by granting incentives, he suggested.

Mulva also recommended that government funding concentrate on technologies with long lead times or highly advanced science on which the oil and gas industry can't focus. "We also would benefit too from greater support of the educational system, particularly in the scientific and engineering disciplines. Otherwise, we anticipate a severe shortage of industry technical personnel in the future," he said.

These priorities must be achieved with full environmental and economic awareness, which includes addressing global climate change, Mulva said. "We believe that the public will not allow new energy development unless the resulting carbon impact is addressed. Conversely, the public will not favor reductions in carbon emissions if, as a result, energy prices are forced upward too much or too fast. Both issues must be addressed together," he said.

A transparent process
Whether with a carbon tax or a cap-and-trade system, addressing global climate change will be costly, making a transparent policy development process essential, Mulva said. "We think the science is quite clear. We also think it's going to take a lot of commitment and a lot of adjustment. That's why it's important to keep talking about these issues. The train is leaving the station. People are forming their opinions," he said.

Mulva said ConocoPhillips belongs to the US Climate Action Partnership, which plans to release its comprehensive climate policy recommendations on Jan. 15. "They should convey a high degree of credibility and merit because of the broad and diverse membership of USCAP. It includes manufacturers of products from cars to medical devices to pharmaceuticals. There are energy producers and electric utilities. There are companies engaged in mining, financial services and consulting. There are prominent environmental organizations," he said.

"In short, there is broad representation of business and industry, and of the environmental community. So the consensus recommendations are neither a one-sided, proindustry approach nor simply a proenvironment approach. They are balanced. They can and should serve as a guide to Congress as it crafts climate policy," Mulva said.

He noted that oil and gas executives consider prices in preparing budgets because of their potential cash flow impacts. But other factors also have an influence, including difficulty in obtaining permits for production and infrastructure improvements which has affected ConocoPhillips operations in the US, he said.

"Oil prices went up too quickly last summer. We also recognize that the economic recession since then has had an impact and brought prices down. We think today's prices will produce a response. We also think they need to be somewhat better to produce the necessary investments," Mulva said.

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