KPMG: Industry execs say energy independence not possible by 2030

Despite the emphasis on alternative energy sources in current and proposed government energy policies, the US cannot attain energy independence by 2030, said a large majority of oil and gas executives recently surveyed by KPMG LLP's Global Energy Institute.

Sam Fletcher
Senior Writer

HOUSTON, May 4 -- Despite the emphasis on alternative energy sources in current and proposed government energy policies, the US cannot attain energy independence by 2030, said a large majority of oil and gas executives recently surveyed by KPMG LLP's Global Energy Institute.

Most surveyed said mass production of alternative energy simply is not viable in the short term. And while there is a marked shift in their acknowledgement of global warming, the majority does not support proposed regulations to stem carbon dioxide emissions.

Since Richard Nixon, US presidents have talked about energy independence. President Barack Obama has called for this country to be independent of crude supplies from Persian Gulf producers by 2020 and from all members of the Organization of Petroleum Exporting Countries by 2025. By 2030, he hopes to see renewable energy sources taking much of the national market share from fossil fuels.

But of the 382 oil and gas financial executives polled by KPMG in April, 63% said energy independence is not possible until after 2030. Only 16% said it might happen by 2030, while an optimistic 9% said independence is possible before 2020.

Also, 63% of the respondents said Obama's plan to eliminate tax breaks for intangible drilling costs will actually push more companies to shift their drilling efforts overseas and will result in unconventional oil and gas wells not being drilled in the US, a factor that likely will slow the race toward energy independence.

"Despite the increased focus on domestic energy sources, energy infrastructure, and alternative energy sources, a realistic assessment of technology and investment in the industry suggests energy independence is not realistic for at least 2 decades," said Bill Kimble, executive director of KPMG Global Energy Institute. "The executives' perceptions of energy independence mirror their views on the viability of alternatives in the near term as well."

Oil and gas executives expect Obama's energy policy to focus primarily on alternative and renewable energy sources. However, 52% said mass production of any alternative energy just isn't feasible by 2015. That's down from 54% last year and 60% from 2 years ago.

Winners and losers
Oil and gas executives are uncertain about which of the competing energy sources will benefit most from the Obama administration's energy policy. The largest segment, 35%, expects wind energy to get the biggest boost. However, 18% favor natural gas, and 17% opted for biofuels. Conversely, 42% of the executives see coal as the biggest loser while 36% said oil will be hardest hit.

"These results clearly show the momentum wind energy has gained as a clean-energy solution," said Kimble. "But 93% of our respondents see wind generation growing to only 6% of our energy generation by 2015 and only 17% say wind energy will be viable for mass production by that year."

Next to alternative energy, the executives said the subjects that will be under the sharpest focus from the new administration will be greenhouse gas emissions and the cap-and-trade program. The Environmental Protection Agency recently concluded CO2 emissions from burning fossil fuels are the main cause of global warming. Yet 47% of the company executives polled are still convinced global warming is only a natural weather cycle. However, that number is down from 62% in KPMG's 2008 survey.

"Our data shows a noted swing in executive perceptions on the issue of greenhouse gases and global warming," said Kimble, "but there is clear reluctance to support proposed actions and regulations to stem CO2 emissions."

In fact, when asked if they would support a cap-and-trade or carbon tax to reduce CO2 emissions, KPMG found 59% do not support either, 23% would support carbon tax, and 18% would support a cap-and-trade system.

In late April, a ConocoPhillips official told the US House Energy and Commerce Committee refiners will be hit harder than other US manufacturers under proposed cap-and-trade legislation. Red Cavaney, ConocoPhillips's senior vice-president of public affairs, said, unlike other manufacturers, refiners could not pass on the $68 billion the US Energy Information Administration estimated refiners would pay annually under a $25/ton carbon tax under a measure that includes collections of end-users' carbon taxes in addition to levies on refiners' greenhouse gases under the measure (OGJ Online, Apr. 23, 2009).

Spending outlook
Industry executives were pessimistic in their outlook for capital spending and key business issues. Of those surveyed, 65% expect their companies to reduce capital budgets this year, including 47% who expect spending to drop more than 10%. Only 17% expect to increase spending from 2008 levels. KPMG officials said that's a "stark contrast" to their 2008 survey when 70% of the respondents anticipated an increase in capital spending and only 5% expected a decrease.

Although oil prices have stabilized in recent weeks, KPMG found executives still rank commodity pricing as the major challenge facing their companies in the coming year. Other key business challenges in order of significance include the economy, access to capital, and regulatory concerns.

"There is no question that the economy has had an impact on US energy companies, both in terms of pricing and capital," said Kimble. "However, with the current regulatory and legislative environment, oil and gas executives are also faced with the challenges of an evolving and dynamic industry pushing toward non-traditional energy sources."

KPMG officials plan to discuss survey results at the firm's Seventh Annual Global Energy Conference for financial executives May 12-13 at the Intercontinental Hotel in Houston. Keynote speakers will be Madeleine Albright, former US Secretary of State under President Bill Clinton; and Marvin Odum, president of Shell Oil Co.

KPMG LLP is a tax and advisory firm and the US member of KPMG International; the parent firm has more than 7,600 partners in 144 countries.

Contact Sam Fletcher at samf@ogjonline.com.

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