Natural Gas – American Job-Creation Machine
Remarks by Jim Mulva
Detroit Economic Club – Sept. 14, 2011
Speech as prepared for delivery.
Since I did grow up in the Great Lakes area, I can assure you that this is a special part of the country for me. I remember watching the big ore carriers out on Lake Michigan. Hauling iron from up north to the entire region. When the manufacturers did well, building cars, tractors, trucks and machinery, so did the shippers, miners and support industries. The Great Lakes area flourished.
It was a good lesson in how we all need each other. Industries, states, and even regions are interdependent. Clearly, job retention and job creation are foremost in everyone's minds these days.
From our president to representatives in Washington to state capitals, jobs are the most pressing need. I'll give you my view on this issue, speaking as a CEO and member of corporate boards.
One of the ways we enhance the value of ConocoPhillips to our shareholders is through careful allocation of capital. We must provide capital to the businesses that can grow. And manage or divest those assets whose growth is either limited or declining. We also have to make disciplined investments. Only the best projects can proceed.
There are investor return expectations to meet, through share performance, dividends and share repurchases. And we must continually adapt to changing market conditions. In our case, we plan to split our company into its logical elements. Exploration and production to find and develop energy, and refining and marketing to transform energy into consumer products.
Our success at implementing these strategic elements is the key to keeping the enterprise healthy. If we do this correctly, we will also retain and create the maximum number of jobs that our business can support. And in turn we will meet our many other societal obligations and help enhance the health of the American economy.
Like energy, the auto industry has the same capital allocation needs and challenges. As well as changing markets. It has adapted in the past and will do so again. As always, the auto industry remains foundational to the economy, both here and nationwide. It accounts for 20% of all U.S. manufacturing jobs, directly or indirectly. Manufacturing is essential.
This brings me to the topic I want to focus on. And it too is essential. It is an area where we have chosen to devote a substantial share of our capital, natural gas. We have done this because it is important to our business. Also because it contributes to our nation's energy security and to American job creation.
Natural gas heats our homes, schools and factories, and generates electricity. And it shares another vital characteristic with manufacturers. It creates jobs. President Obama visited Detroit on Labor Day to talk about jobs. Unfortunately, he didn't mention natural gas either then or during his speech last week. But I can assure you that gas is already helping spark the American job creation machine. And we can grow that into a flame.
At ConocoPhillips, we believe so strongly in natural gas that it's a major portion of our portfolio. We believe natural gas must be part of any discussion on strengthening our country's long-term economic health. It should also be part of any discussion on improving energy security, protecting the environment, and yes, creating jobs.
Like the President, I am enthusiastic about the turnaround and prognosis for the U.S. auto industry. You've added 115,000 new jobs since 2009 ---- the most in 13 years. Sales are up. Quality is rising. There are exciting new domestic cars. In fact my wife and I just bought one. We love it.
The automotive future is also exciting. Fuel economy is rising. Electric and plug-in hybrid cars are building a following. The electricity to recharge these cars must come from somewhere. Here again, natural gas can help.
There is also support in Congress for natural gas-powered vehicles. At least where they are practical, in fleet trucks and buses that can be refueled in central facilities each night. So it's fair to say that again, Detroit and the energy industry are in lockstep. We are building a strong American job-creation machine.
And natural gas is an important part of that future. We have ample reserves here. We can access them in a safe and environmentally sound way. And these resources are generating new jobs, by the tens of thousands.
This isn't just our story. It's yours too. Every job created by natural gas adds to the customer base for cars, houses, appliances, everything. And the availability of natural gas at low cost represents a key U.S. competitive advantage. Very few countries can match our expanded energy resource base. We can use this to strengthen the competitiveness of energy-intensive American manufacturers.
On both a direct and indirect basis, natural gas currently sustains 2.8 million U.S. jobs.
There's more. A consulting firm recently looked at the oil and gas industry's future job potential. It predicted that a half-million new jobs would be added by 2030, under existing government policies. But if government adopted more favorable policies, we could create another million new jobs on top of that. This would be at no cost to government. In fact, government revenue would rise by $800 billion – which would certainly help in deficit reduction.
These are big numbers. You might ask, are they really achievable? To answer, just look at what we've already done. In a relatively few years, the North American natural gas outlook has been transformed. We now recognize over 100 years of supply, enough for our children, grandchildren and beyond.
All of this is creating jobs, and not just in the traditional producing states. Shale gas now comes from at least 15 states. Including Kentucky, New York, Ohio, Pennsylvania, West Virginia, Indiana, Illinois, and yes, Michigan.
This has been made possible by no less than a modern industrial revolution. It's been known for decades that shale rock in many areas holds natural gas, and sometimes oil. Broad deposits of this rock can cover thousands of square miles. Even entire states. Or multiple states.
But until recently, we didn't have the technology to produce it economically. Then in the 1990s we started combining two innovations. One was hydraulic fracturing. This is pumping fluids down under pressure to create microfissures in the rock. These fissures are tiny. We prop them open by injecting sand with the water. They provide pathways for the gas to flow. Fracturing isn't new. It was developed in the 1940s, and has been used safely on a million wells over the decades.
But in the case of shale rock, this still wasn't enough. Another innovation was needed, this time a new one, horizontal drilling. In this, we start with a vertical well, and drill down thousands of feet. Then, at the bottom, we curve it out to the side. These horizontal wells can now extend a mile or more in the target formation. This exposes the well to more gas-bearing rock.
These long horizontal wells, combined with fracturing, make production possible for the first time from a number of rock types. They also help reduce the surface footprint, since one well can replace the need for many.
Combining these technologies to bring major shale gas production online has been a game changer. As recently as the 1980s, natural gas was considered a sunset industry in the U.S. Production, reserves and demand were all falling. The turnaround since has been so dramatic that we at ConocoPhillips now refer to natural gas as nature's gift. Partly for its abundance and low cost. Also for its benefits to national energy security and the environment.
In fact, natural gas is essential to helping the U.S. meet both short- and long-term environmental and climate goals. For example, it produces little of the nitrogen, sulfur compounds and particulates that cause acid rain and smog. When used for power generation, it produces only half the carbon dioxide of coal. It requires 1/20th the land footprint of equivalent wind energy. Power plants fueled by natural gas use 60% less water than coal plants to generate the same amount of electricity. And they do it without producing soot or fly ash.
Also, the availability of natural gas actually facilitates the use of renewable energy. Gas-fired power plants are very flexible. So they can easily ramp up when the wind doesn't blow, or the sun doesn't shine. If electric vehicles really catch on in the future, we could recharge them with gas-fired electric power generation, cleanly and efficiently.
Let's bring this home to Michigan. As you probably know, there is shale gas here. It was produced from the Antrim (ann-trim) formation as early as the 1940s. Intensive development didn't come until the 1990s. Nearly 10,000 wells are online today. After all these years, production is now falling. But there are two new shale trends thousands of feet below the Antrim. They are the Collingwood and Utica formations. These attracted $178 million in lease payments to the Michigan state government last year. Exploration and development is still in the early stages.
Natural gas currently provides 80% of Michigan's home heating. It also provides 10% of Michigan's electricity, so there is plenty of room for growth. Gas is an important option for Midwestern utility companies. The EPA is tightening standards on emissions of mercury and other substances. This may cause the shut down of some older coal-fired plants. Natural gas is the best option to fill in.
By the way, you probably use natural gas in more ways than you know. Besides energy, it's a raw material in fertilizer, plastics and petrochemicals. This combination means that natural gas plays a role in the production of countless household products.
Now, let's look closer at some of its job-creation benefits. The Barnett Shale trend in Northeast Texas has created 100,000 jobs. In South Texas a new field, the Eagle Ford, will create 68,000 jobs by 2020. Thousands already exist. The surrounding area is booming from new drilling and increased business across the board, from restaurants to grocery stores to hotels. The Marcellus trend in the Northeastern U.S. has the largest resources of them all. It covers all or parts of seven states. According to Penn State University, gas development now supports 140,000 jobs in Pennsylvania alone.
Natural gas also benefits other industries. For example, petrochemicals. The American Chemistry Council has studied what would be gained from greater domestic natural gas production. Their industry would see a 25% increase in ethane supplies, which are used as feedstocks. This would create 17,000 jobs in that industry, and 395,000 more jobs outside it.
Numbers like these are really encouraging. We have a powerful job creation machine available, if we put it to work. But in capturing the full potential of natural gas, our industry faces challenges.
Some are not unlike those faced by Detroit. We recognize that we must always continue innovating. We must keep on inventing new technologies to minimize our environmental footprint, and enhance safety and efficiency. And we must overcome some mistaken public perceptions.
For example, the "silver bullet." This is the belief that there's a great new energy source just around the corner. And that it will be cleaner, cheaper, and easier to deploy and use than fossil fuels, while also creating those wonderful green jobs. Well, I have news. Natural gas comes closer to being that silver bullet than anything else does. It's here today, increasingly abundant, cheap and clean. The infrastructure already exists. And rather than merely promising jobs in the future, gas is creating them now. By the tens of thousands. Without special government subsidies.
This is not to say that natural gas is the only energy source needed. We believe that all sources will be necessary in the future. Fossil fuels, biofuels, wind and solar power, even some sources not invented yet. This will be particularly true once the national economy rebounds. But natural gas is far more than a bridge fuel to the future. It is a key part of the long-term solution.
Since shale gas has breathed new life into the natural gas industry, it's unfortunate to see a serious threat emerge to further development. And that is the perception that hydraulic fracturing pollutes groundwater. The record is in our favor, those million wells safely fractured since the 1940s. The EPA studied the environmental record of fracturing in the past. It concluded that no additional federal regulation was required. A new study is now under way. We expect the results next year.
That's not to say that there is no reason for public concern. There have been some problems. But they are rare. And they were caused not by fracturing, but faulty drilling and well completion work, or improper handling of fluids on the surface. Fracturing is not inherently risky to groundwater. It occurs far below drinking-water aquifers. Typically thousands of feet deeper, separated by multiple layers of solid rock. And the wells themselves are carefully cemented in place, to seal them off from groundwater.
But to address the public's concerns, our industry must follow good practices. These exist, and we must adopt them as standard procedure. There is a role for government oversight in this.
Also, we must de-mystify fracturing. ConocoPhillips supports disclosure of the non-proprietary substances contained in fracturing fluids. Over 99% of these fluids by content are water and sand. The rest, the so-called "toxic chemicals", are primarily trace additives. Each serves a purpose.
You can find some of the same additives in a number of everyday products ... food preservatives, cosmetics, soil conditioners, detergents, table salt, anti-freeze, table salt and others.
Next, let me spend a moment or two on government policy. Washington talks a lot about encouraging energy development, and probably believes it does a great job. But the walk doesn't match the talk.
For example, the energy industry faces threats of tax increases that target us alone. This despite the fact that our effective global tax rates far exceed those of other industries.
We face the imposition of new regulations that cause unintended impacts. Regulations to protect the environment, for example, may not be adequately assessed for their impact on consumers and business. And the cost-benefit analyses used to justify the enactment of regulations may use skewed numbers, that support foregone conclusions. Where regulations are required, they should be effective and reasonable. And they should not duplicate the thousands of federal and state requirements already on the books.
We also face stiff political resistance to opening new areas to exploration. This despite the fact that the public favors expanded domestic energy development.
Also, many states have enacted renewable fuel standards. They require utilities to use certain levels of renewable energy. These sources are more expensive than natural gas, so they drive up consumer costs. And they retard demand for natural gas, itself a clean energy source. Government should not pick technology winners. It should set a performance target, such as for reduced emissions, and let the market determine the best way to meet it.
These are the challenges ahead of us as we strive to deliver the full job creation potential of natural gas. We have work to do. We're going to have to tell our story. That's never been easy for us. Most of our people would far rather focus on developing energy, than debating public policy. But for the good of our country, we're going to try.
For that reason we just introduced a public information campaign, in recognition that natural gas is an important issue for America. We want everyone to be able to make informed decisions.
We believe that as the U.S. enters the election campaign season, energy policy will be a key point of debate. Perhaps not because of energy prices, which are now moderate. Instead, hopefully, the debate will center on using energy development, particularly of natural gas, to drive job creation.
We further believe there is power in cooperation. Rather than polarization and hardening of ideological positions. If we talk to each other as Americans, instead of as Democrats and Republicans, liberals or conservatives, we will succeed in anything we do.
Which includes creation of a comprehensive energy policy. A policy that is balanced, and economically and environmentally sound. And, just as important, a policy that puts more Americans back to work.
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