Incoming Chevron CEO's touts 'lead by example' message

The US should make more of its resources accessible if it expects other countries to do the same for major US oil companies and independent producers, Chevron Corp.’s incoming chief executive suggested on Oct. 27.

Oct 28th, 2009

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Oct. 28 -- The US should make more of its resources accessible if it expects other countries to do the same for major US oil companies and independent producers, Chevron Corp.’s incoming chief executive suggested on Oct. 27.

“The best thing America can do is lead by example. We should act the way we want others to act,” said John W. Watson, who is scheduled to succeed David J. O’Reilly at the multinational oil company’s helm on Dec. 31. “I’ve already talked about domestic resource access, but the fact is that we also need access to resources around the world. Other nations would be more likely to provide it if we started to do it ourselves.”

While politicians have urged US energy independence as a goal since the 1973 Arab oil embargo, one policy after another has severely limited domestic exploration and production, he told the US Chamber of Commerce in a luncheon address.

“In just the past 25 years, America’s oil production has fallen by nearly 4 million b/d. This is the equivalent of taking a major producing country’s supply off the world market,” Watson said. “And over the same 25-year period, US oil demand grew by nearly 4 million b/d. And how have we met all that extra demand? By importing still more from other countries.”

Even it reaches the most ambitious targets for fuel-efficient cars and more use of biofuels, the US will still import about 8 million b/d by 2030, he added. “And this assumes no drop-off in the amounts we use domestically, which itself will require new exploration and development at home, to offset natural field declines,” he said.

The same Washington mindset that would like to tax oil and gas producers more heavily also refuses to allow a complete and accurate measurement of the nation’s oil and gas inventory, Watson said.

‘Vast amounts’
“As lawmakers debate whether to use more of our energy resources, wouldn’t it make sense to at least determine how much we really have? By rough estimates, America has vast amounts of oil and gas in the Outer Continental Shelf, and an estimated 30 billion bbl of it are currently unavailable for development,” he said.

“We know that our methods of extracting it are the safest, most environmentally sound methods in existence. We know that the more we produce at home, the less we import from others. And we know that the result will be new jobs, tax revenue, and a stronger economy when more energy is produced here at home,” Watson declared.

While more access to domestic resources would help, the nation can’t simply drill its way to energy independence, he said. “The solutions to our energy problems are rarely a case of ‘either/or.’ It’s not a choice between more drilling or more efficiency, coal or wind, nuclear or solar. To achieve energy security, we need it all,” he said.

Massive scale, long lead times, and growing demand are the realities the country faces, according to Watson. “And don’t doubt for a moment that America has the means and know-how to manage all these challenges,” he said. “America is not only the No. 1 producer of ethanol and wind power. We’re first in nuclear energy as well. We’re the No. 2 producer of coal and natural gas. And we’re the world’s third-largest oil producer.

“It’s clear that we are energy-rich and our capacity is enormous,” Watson asserted. “This country is not an energy weakling, or anything close to it. We are an energy powerhouse. We’ve got what it takes to keep moving forward on all energy fronts. And that is what we must do if we’re going to be ready for the increase in demand that will come along when the global economy recovers.”

‘Far-sighted’
Watson said it will be possible to manage the transition to lower-carbon energy, but it will take a long-term commitment and a grasp of the truce size and scale of the undertaking. “We can make this transition in ways that are smart, sensible, and creative, setting our sights on ambitious and realistic goals,” he said. “We need to be far-sighted, and remember that investing in future energy sources is never more important than in a down cycle.”

Watson said Chevron sees the way forward on climate change in terms of seven core principals:

• Energy security, “in other words, steady, affordable and reliable supplies to keep this economy functioning and competing.”

• Maximized conservation, “because saving a gallon of fuel is like finding a gallon of fuel.”

• Measured and flexible approaches, “so we know whether we’re meeting our goals, and can make adjustments.”

• Broad and equitable treatment, “because no industry or sector should be unduly burdened with taxes, regulations, and job losses.”

• More public and private support for research and development to enable technology advances.

• Transparency, because “simply stated, we need to be candid about the true costs of any policy we adopt in terms of money spent, restrictions imposed, and jobs destroyed.”

• Global engagement, “which means that just as every nation stands to gain from reduced emissions, all must work together in realizing that objective.”

He continued, “Unfortunately, the cap-and-trade bills we hear so much about don’t live up to these principles, especially by the standards of transparency, security, and equitable treatment. Both the House and Senate bills are examples of how goals detached from reality can do more harm than good to our economy and to American workers.”

He said the bills—as written—would lay heavy new costs on every US family and business, create new government bureaucracies, lack transparency, and would unfairly impose hidden costs on transportation fuels.

“There are serious and systematic ways of reducing carbon emissions for the long term,” said Watson. “But trading in false hopes and inflated numbers will get us nowhere. We need to set goals that are both challenging and realistic. We need to willingly assume the associated costs, which we all must bear. And we need to accept that an economy free of all fossil fuels must just be beyond our reach.”

Fossil fuels’ role
He said when he visits Washington, he often has a chance to meet with policymakers. “And my best advice to them is never to take economic growth for granted, or to forget that the strongest economies, and those on the rise, are still powered largely by fossil fuels,” he said.

“To the extent that oil and gas fuel economic growth, they can actually serve the goal of getting us beyond a carbon-based energy economy,” Watson maintained. “It is no coincident that the greatest advances in alternative fuels have come in the past quarter-century, a time of incredible economic expansion. The market is working as investment capital moves in the direction of new sources and greater efficiency.”

Advocates of new controls and mandates often neglect this crucial point, he said. “Alternatives depend on innovation, and innovation depends on growth and open economies. Growing economies are always better suited to make the big investments that yield the long-term payoffs,” he observed.

Members of the Rainforest Action Network staged a protest outside the US Chamber of Commerce’s headquarters, with demands that Chevron assume liability for damage from oil operations to indigenous tribes in Ecuador. Responding to a question following his address, Watson said it involved a project in which Texaco Inc., which Chevron acquired in 2001, was involved until 1990; that Texaco satisfied all of its liabilities before pulling out of Ecuador in 1992, and that Ecuador’s government signed off on the settlement before its national oil company assumed full operation of the project.

Allegations that Chevron is dodging responsibility for damages are false, Watson continued. “We see a disturbing trend where US trial lawyers conspire with corrupt officials in producing countries and make outrageous charges. We will fight this vigorously,” he said.

Contact Nick Snow at nicks@pennwell.com.

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