Is increased domestic supply and production the only answer to the U.S. energy crisis?
While it is true that the U.S. is the only country in the world sitting on known reserves of oil and gas that are not being developed, the country needs a comprehensive policy that addresses a sustainable, affordable and secure supply of energy.
To be truly comprehensive, any policy must increase domestic energy supply by removing restrictions to oil and natural gas exploration in the U.S.; encourage greater use of energy efficiency, renewable energy and clean coal technologies through tax incentives and other programs; accelerate nuclear power deployment; and pass fair climate change legislation that is environmentally effective and economically sustainable.
Why are oil companies choosing not to drill on leases they already possess offshore in the Outer Continental Shelf?
Once a lease is secured, a long, comprehensive exploration process begins that can require years of mapping, testing, drilling and construction and cost millions or even billions of dollars. Bidding on, paying for and securing a lease is not a license to drill, nor can production occur immediately. Not all leases contain commercially viable quantities of energy. Even after time delays associated with initial leasing and drilling of exploratory wells, it can take a few years to produce energy from leases.
Some politicians and policymakers have recently stated that the U.S. cannot drill itself out of the energy crisis. Is that true?
The U.S. needs a comprehensive energy plan that promotes aggressive energy conservation, drives market penetration of renewable and alternative forms of energy, and allows for greater domestic production of oil and natural gas (offshore and onshore). According to the Department of the Interior, there are 86 billion barrels of oil and 420 trillion cubic feet of natural gas offshore on our nation’s Outer Continental Shelf -- equivalent to 35 years of the oil we import from OPEC and an 18-year supply of natural gas. These are domestic supplies that can be produced with state-of-the-art technologies that assure environmentally friendly production.
By developing the Outer Continental Shelf for oil and natural gas exploration and production, lease royalty revenues can be shared at the state and federal level. These revenues can help fund energy efficiency programs as well as research and deployment of clean, low-carbon energy sources for the future.
Is it environmentally safe to drill for oil and natural gas in the Outer Continental Shelf?
The technology is available that allows the U.S. to develop and produce oil and natural gas in an entirely safe and environmentally sound manner. During Hurricanes Katrina and Rita, considerable damage was done to offshore drilling platforms without harmful impact to the environment.
Why aren’t we tapping these vast energy resources contained in the Outer Continental Shelf?
In 1982, Congress enacted legislation banning any new leasing and development on the Outer Continental Shelf (OCS), which are federal waters that start 3 miles from U.S. shorelines. The ban prevents development on more than 85 percent of the OCS. The U.S. is the only country in the world sitting on known reserves of oil and gas that are not being developed.
How much oil and gas is there in the Outer Continental Shelf?
The federal government estimates there are 86 billion barrels of oil and 420 trillion cubic feet of natural gas offshore on our nation’s Outer Continental Shelf. But it is quite likely there are multiples of those numbers because the data is based on tests done decades ago in some cases. Gulf of Mexico areas open for energy development have produced more than three times the originally-estimated amount of natural gas – and experts now believe that there is more than five times that amount left to discover and produce. The more we explore, the more we know.
How much can energy efficiency contribute to the current energy crisis?
In the U.S. alone, a 25% improvement in energy efficiency – similar to what Dow accomplished over the last 10 years – could eliminate the Btu equivalent of all our energy imports from the entire Persian Gulf region.
Buildings alone are responsible for 40 percent of energy use, 70 percent of electricity use and 38 percent of CO2 emissions. A combination of federal incentives and local energy efficiency building codes could sharply reduce energy consumption in the U.S., which would add slack to supplies and lead energy prices to fall dramatically. According to a 2007 report from the National Petroleum Council, available efficiency technology would reduce energy use by 15 to 20 percent if applied today.
What is Dow doing to control its energy costs?
We’re doing all that we can. We have focused relentlessly on energy efficiency, which has allowed us to improve our conservation 22 percent from 1995 to 2005. This saved 900 trillion Btu, the energy equivalent to power eight million U.S. homes for a year. We continue to wring out efficiencies in our own operations and, to date, we have saved 1,400 trillion Btu while preventing 70 million metric tons of carbon dioxide (CO2) from entering the atmosphere. We are targeting another 25 percent reduction in energy intensity by 2015.
In addition, Dow has shut down over 90 plants since 2003. We are investing in alternative sources of low-cost energy and feedstocks and investing around the world in places where energy costs are lower. We’re making great progress, but the staggering increases in our energy costs – 42 percent increase in energy and feedstock costs during the first three months of 2008 alone – have forced us to take even more extraordinary measures.
How have high energy prices affected Dow?
In 2002, Dow paid $8 billion for energy and feedstock costs. In 2007, we paid $25 billion, a three-fold increase. At the current rate, we’re facing a 2008 tab that will top $32 billion.
Feedstocks and energy account for more than half of Dow’s costs. For the first three months of this year, our feedstock and energy bill was 42% higher than the same period in 2007.
What is Dow doing to affect U.S. energy policy?
Dow has been vocal and active in calling for a new, responsible energy policy for many years. Our CEO first sounded the alarm about energy prices in 2002. Dow leaders – from the CEO on down – actively communicate with policymakers to urge that the U.S. adopt policies that support greater energy efficiency, alternative and renewable energy sources, and increased exploration and production of American oil and natural gas.
How can other companies get involved in promoting a sound U.S. energy policy?
U.S. customers can contact their Members of Congress and ask them to promote greater energy security by increasing domestic supply, promoting energy efficiency, alternative and renewable energy and increasing market transparency.
Some politicians say we should impose a windfall profits tax on oil companies. Is that a good idea?
No – the tax has been tried before and had a detrimental effect on domestic production. It required us to import more oil and natural gas, according to Congressional analysts at the nonpartisan Government Accountability Office. The tax penalizes American companies who have invested heavily in a very cyclical business. We need to incentivize them to produce more oil and natural gas, not less.
Shouldn’t policy be focused on increasing renewable energy production?
We need a diversity of sources to assure U.S. energy security. Wind energy -- and increasingly solar -- have become important for electricity production. For transportation, manufacturing and other applications, we need more natural gas and oil. By all estimates, those fossil fuels will continue to provide the bulk of our energy needs for decades to come.
I have read that speculation by energy traders is keeping prices above levels appropriate for the market. Is this keeping energy prices higher than they should be?
While some speculation is likely occurring in energy markets, it is happening because the fundamentals of supply and demand are out of balance. It is amplifying the problem, but is not the cause. Failure to adequately develop domestic U.S. energy resources contributes to the scarcity that feeds market speculation. Greater market transparency would help minimize whatever speculation exists.
For additional information on comprehensive solutions to the energy crisis, visit the National Petroleum Council (NPC) for the NPC Report.
