Energy Policy:

API's Gerard discusses future of Keystone XL

With a greater focus on climate change and clean energy expected during President Obama's second term, how will the administration proceed with the Keystone XL pipeline proposal? During today's OnPoint, Jack Gerard, president and CEO of the American Petroleum Institute, discusses his expectations for the future of Keystone and the United States' energy relationship with Canada. Gerard also weighs in on the prospects for an energy bill and oil and gas policy.

Transcript

Monica Trauzzi: Hello, and welcome to On Point. I'm Monica Trauzzi. Joining me today is Jack Gerard, president and CEO of the American Petroleum Institute. Jack, always a pleasure to have you on the show.

Jack Gerard: Always great to be here, Monica.

Monica Trauzzi: Jack, in his acceptance speech last week, the president spoke about the importance of clean energy. It will clearly be a critical part of the agenda moving forward in his second term. Should and will the oil and gas industry look to form a collaborative relationship with the administration on energy policies that will take us through the next 20 and 30 years? Are you going to sit at the table with the administration and try to compromise?

Jack Gerard: Well, we're clearly going to sit at the table with the administration, because the energy equation in the United States requires that oil and natural gas continue to play a critical role. Today, over 62 percent of all the energy we consume is oil and natural gas, and the president's own economists will tell him that 30 years from now, over 50 percent of our energy will still be oil and natural gas. So we are a key player. I think they fundamentally recognize that. While some of the rhetoric and some of the messaging might change slightly, go back to the election and see what the president said. He talked about all of the above in the first two fuel forms he mentioned? Oil and natural gas. So if he stays true to the standard or the platform he was elected on, oil and natural gas will be a key part of his energy equation moving forward, and we fully expect to be at that table, to have conversations with the White House.

Monica Trauzzi: And do you expect that he will stick to what he said during the campaign on the all of the above strategy?

Jack Gerard: Well, we certainly hope so. You know, a few years ago he talked about oil and natural gas as yesterday's energy, and over the course of the past couple of years, as the American people have risen up and said, "Hey, this is important to us from a job creation, economic recovery, and we like affordable, reliable energy." The president's position has evolved 180 degrees on that. So I guess the real question is for the president. Will he stay true to what he promised the American people and what he ran on, or will he now shift that he's been reelected? We're hopeful he'll stay true to where the American people are, even today, with over 73 percent of them supporting expanded production of oil and natural gas.

Monica Trauzzi: After Obama's re-election, Canadian Prime Minister Steven Harper said, "The president has said repeatedly to us that he has not yet made a decision on Keystone XL." This administration is expected to have a decidedly greater focus on climate change. We're starting to hear some rumors, significant rumors around town that this pipeline might not actually happen. What does your industry do if the pipeline is not approved? What is plan B?

Jack Gerard: Well, I think it's a fundamental infrastructure question. Are we going to build the infrastructure of the United States to move the energy we need to fuel this economy, or are we going to obstruct individual projects which ultimately increase the cost of energy to consumers? So the public understands there's an opportunity here to continue to provide affordable, reliable energy, or if the president chooses to block the infrastructure necessary to move oil and natural gas, ultimately, it will find its way here, even if it's from import, but the cost to consumers will continue to go up. Let me just touch on one other part of that question, which is very important. There's a lot of people in Washington and across the country who are now saying that this election was a mandate for climate action. Well, I seem to remember just two weeks ago where they were trying to get climate in the conversation. They were trying to suggest before the debates, gee, we've got to get these candidates to talk about climate. They weren't talking about climate. Why? The American people are focused on jobs and economic recovery. Climate today is a secondary issue. So if the president chooses to wipe away all that was talked about in the campaign, all that the American people supported to reelect him, and now pivot and go to an entirely different agenda, that's his choice. He's the president. But it's inconsistent with where the American people are today with laser focus on jobs and economic recovery.

Monica Trauzzi: So is there a way for your industry to salvage relations with Canada if the US government decides not to go forward with this pipeline?

Jack Gerard: I'll tell you, our relations with Canada are terrific. Talking to Prime Minister Harper, Ambassador Doer here in the United States, we have worked very closely with them. We are closely aligned on the need to build the Keystone XL Pipeline. The relationship we need to be concerned about is between the president of the United States and the Canadian Prime Minister, and that's the one where tension has been created as a result of the denial of this pipeline coming in from Canada. So from an industry perspective, we have a great relationship with Canada. They're our number one trading partner from an energy perspective. And we think that relationship will continue to grow over time. But I do think there's need of a little repair between the administration and the Canadian political leadership.

Monica Trauzzi: Do you see a situation where this president might use Keystone to sort of try to leverage certain policies and legislation from moving through on the Hill?

Jack Gerard: He might, but I think ultimately it's his discretion to make that choice, whether or not he approves Keystone XL Pipeline. My sense is there's not a lot of leverage there, because everybody, knows where the American people are. Today, the support for Keystone Pipeline exceeds 68 percent of the American public. So I don't think there's a lot of leverage to leverage into other discussions. I think it's a fundamental question, is the president serious about job creation, energy production, affordable, reliable, energy, or are we going to go back to a pure ideological conversation and push an agenda that's inconsistent with the American people? That's the question.

Monica Trauzzi: So if the pipeline is not approved, what will that foreshadow to you about Obama's oil and gas agenda for the next four years?

Jack Gerard: Well, I think it's the first test to see just how serious we are about what the president has articulated as his all of the above strategy. In that all of the above strategy he mentions oil and natural gas as primary forms of energy. He also talks about the renewable forms, wind, solar, the list goes on, all of which are important. We need a true all of the above. So if the president has articulated that vision, and the American people said, "You know what? We support that vision," and then he chooses to pivot and to go against the very vision he's articulated, that's the president's choice, but it will be an early indication that he's not serious about what he promised the American people.

Monica Trauzzi: Would you worry that this might then have implications for things like fracking and natural gas development? Could this tell you sort of what's going to happen on that front?

Jack Gerard: Well, I think it would be an early sign. It would be a complete sign, because there are other issues involved beyond just the pipeline. But it would be an early indication that perhaps he's not as serious as he led the American people to believe about producing the nation's oil and natural gas.

Monica Trauzzi: Would we finally see an energy bill from this Congress?

Jack Gerard: It'll be interesting to watch the Congress, because in the current context, if people are focused on jobs and economic recovery, part of the discussion we've been trying to have with the American people, and I believe have been quite successful at it, is the American people, today over 90 percent understand that production of oil and natural gas equals jobs, good paying jobs. That's where they're focused. They could look at the oil and gas sector as a major job creator and revenue generator, if they'll give us the opportunity to produce our own domestic oil and natural gas, and that's the real question for the president. If you're serious about economic recovery, we can help you. It doesn't help by imposing punitive taxes on the very people you're trying to get to create jobs. What would help is to turn us loose to produce the energy, employ Americans, and produce billions of dollars of revenue to the federal government at the same time. It's a win/win. It only has to be embraced by the president.

Monica Trauzzi: All right. You mentioned the T word, taxes. What are your expectations for how tax reform, the tax reform that's being discussed in Washington right now, might impact your industry?

Jack Gerard: Well, I think comprehensive tax reform will be pushed off into 2013, likely also into 2014. That's a long term, broad, complex conversation with lots of moving parts. A more fundamental question is how do we deal with the fiscal cliff over the next six to eight weeks? I fully anticipate there will be some who will come back in a punitive way and say, "We ought to single out one industry, the oil industry and natural gas industry, and we ought to punish them." The bottom line is we're currently the largest, one of the largest tax payers in our society. We contribute over $86 million a day and pay an effective tax rate of 44 percent. Now that's contrasted to other industries who pay an average of 26 percent. So if you want to know who's paying their fair share, it's the oil and gas industry. We're happy to continue to pay our fair share, but we shouldn't be singled out for punitive treatment.

Monica Trauzzi: I want to get one final question in here. What's the future of DOE Secretary Chu? How challenging of a confirmation process might it be for a successor, if he does decide to leave DOE?

Jack Gerard: Well, everything I've heard, and I have no particular insights into this, my sense is he will likely leave. But keep in mind, most of the energy policy of the United States comes from the Department of Interior, which has control over the federal land, specifically the outer continental shelf and the onshore federal lands. So while Department of Energy is important, it has a heavy focus on nuclear cleanup and research and development, and far less to do with the fundamental decisions as to the direction of this country in oil and gas development.

Monica Trauzzi: All right. We'll end it right there. Thank you, as always, for coming on the show.

Jack Gerard: Thank you, Monica. Always good to visit with you.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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