As crude oil prices continue to decline and natural gas faces increasing competition from the clean energy sector, how are the U.S. oil and gas industries adjusting to the changing market dynamics and shifting their long-term plans? During today's OnPoint, Jack Gerard, president and CEO of the American Petroleum Institute, discusses the oil and gas outlook, his organization's focus on natural gas ahead of the elections, and the impact presidential politics could have on industry growth.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Jack Gerard, president and CEO of the American Petroleum Institute. Jack, thanks for coming back on the show. Nice to see you.
Jack Gerard: Thank you.
Monica Trauzzi: Jack, during his final State of the Union address the president made a statement about fossil fuels. In particular, oil and coal. It was a bit unclear even to industry insiders what exactly he meant. What action are you anticipating from this administration on the management of oil and coal?
Jack Gerard: Well, unfortunately, we expect the president will continue the trend, which we've seen over the past few years. That is overregulation. Simply stated, a lot of people might not realize, but over the last year -- so we've dealt with close to 100 new regulations from this administration on oil and natural gas.
Yet, at the same time, we've been able to achieve record production in this country that's created thousands of high-paying jobs and literally moved the epicenter of energy from around the world to the United States.
So we wish the president and his team would reconsider what they're thinking about hindering or discouraging this great American energy renaissance and would actually come forward with proposals that would say, "How do we work together as Democrats, as Republicans, as the Executive Branch or the Congress and really realign global energy so the U.S. can achieve its potential?"
Unfortunately the president's statement suggests it's going to be more of the same. It's going to be overregulation. It's going to be hindering our activities or placing burdens on as such that discourages the very activity that would create the jobs the country needs.
Monica Trauzzi: So API has taken several steps in recent months that could be seen as a pivot to natural gas and away from oil. You've taken over America's Natural Gas Alliance and you recently said natural gas would be at the forefront of API's messaging heading towards the elections. Have you shifted your focus to natural gas?
Jack Gerard: No. Our focus has always been oil and natural gas. The API has always represented the oil and natural gas industries as well as the refinery sector, et cetera.
When you think about it, the API is the only association that represents all aspects of America's oil and natural gas industry.
What the addition of the ANGA activities will do for us is refocus more of our activities in the market development area. So we'll be doing a lot more outreach, if you will, to the state PUCs, to the public utility commissions, as they implement the Clean Power Plan in making sure that natural gas is not disadvantageous.
It's unfortunate because the second round, the final round of the administration's Clean Power Plan actually advantages solar and wind over other energy sources. WE believe that was very unfortunate.
Natural gas has brought us to where we are today by lowering carbon emissions to a near 20-year low. It's the fuel of choice. It's low cost. It's affordable. It's clean burning. It's reliable. Those are all the things that we'll be advocating to make sure regulators, states and others give natural gas an equal opportunity.
Monica Trauzzi: And state PUCs are digging in right now to compliance plans --
Jack Gerard: They are.
Monica Trauzzi: -- and what things are going to look like. What are you hearing from them? Are they giving natural gas the same look as they are renewables?
Jack Gerard: Well, what we're seeing early on is the recognition because the market has really moved us there. If you look at the American energy renaissance today we hear about -- we call it the U.S. model. We actually have record production of oil and natural gas and yet our carbon emissions are at a near 20-year low.
People say, "Well how can that be if you're producing all this fossil fuel yet at the same time you're reducing your carbon emissions?" The answer is this is primarily driven by natural gas consumption.
So most of the state PUCs already understand it, and the reason they understand it is because they're consumer-focused. They're focused on what does this mean to the ratepayer. What does this mean to Monica and her home when she pays for energy on a monthly basis?
What it shows is because we've had this significant increase of production, the supply out there is such the price has come down dramatically. So now natural gas is not only affordable and competitive across all other fuels, but it's a cleaner-burning choice.
So we think we've got a great story to tell. We just want to make sure people don't disadvantage it. We're not asking for any special provisions. We're not asking for handouts. We're just asking for an opportunity to compete and let natural gas do what it does so well.
Monica Trauzzi: So it sounds like in some sense you believe that the future of natural gas is in peril. You're ramping up your messaging. You're having all these conversations with the state PUCs. The natural gas industry is in a very different place than it was a couple years ago.
Jack Gerard: Monica, I wouldn't say it's in peril. I think it's unfortunate that some regulators and including this administration have indicated they're going to do what they can to disadvantage it.
It was very unfortunate when they put out the final Clean Power Plan rule, one of the statements made by the president was, "Well this is going to eliminate the dash to gas or the rush to natural gas." Well why would you eliminate an affordable fuel, a cleaner-burning fuel that's reducing your carbon emissions?
It can only be explained in one way. The administration has their preferred choices of energy, and they're choosing solar and wind over all other energies.
The unfortunate thing is those are more costly energies. They have to be backed up by natural gas because they're intermittent sources, and the American public we don't believe is going to stand for significant increases in their energy costs.
So once again we're going to be out there talking reason to local regulators, to state regulators and just reminding them if you want to benefit consumers like we are today, the $2 -- $1,200 a year per American family because the price has dropped, if you want to continue to clean the environment, lower carbon emissions, natural gas is your preferred choice and you can do it without hurting consumers.
Monica Trauzzi: So what do you think happened over the eight years of this administration to account for the shift in tone on natural gas because early on in the administration there was definitely a lot of support for natural gas. Natural gas was see as this bridge fuel. Then with the Clean Power Plan, definitely more of a focus on clean energy. What happened?
Jack Gerard: Well, it's unfortunate because I think what happened is when the president and his advisers made a decision to break from the standard democratic processes, and what I mean by that, is you remember a few years ago the decision was made, "Well I've got my own pen. I've got my own paper. I'm going to go this alone."
At that point you see a breakaway from what I believe were good consensus-built decisions or policies, such as let's go to an affordable, reliable energy like natural gas. Unfortunately they moved to the shrill fringes of society in terms of political ideology and now they're taking, in my view, extreme positions.
By trying to push or disadvantage natural gas is not in the United States' best interest. It is not in the public's best interest, and it's clearly not in our interest as you think about this globally from an energy security standpoint.
So why would they move there? I don't want to suggest I understand their motivation. I will tell you the extreme elements of that base though suggest that we shouldn't produce any fossil fuels. They've got this new mantra they call keep it in the ground. Well that's a very extreme position.
Unfortunately it appears that some of the policies of the administration have migrated in that direction.
Monica Trauzzi: The cost of renewables has gone down though, and storage solutions --
Jack Gerard: It has.
Monica Trauzzi: -- storage technologies continue to improve and we're expecting continued advancements on that front as well. Will there come a point where natural gas can't compete or has difficulty competing with renewables because the cost comes down so much?
Jack Gerard: I don't think so. If you look at even the experts, if you look even at the administration's economic and energy projections going forward, even they will tell you today that by 2040, 80 percent of all the energy we'll consume in the United States will still be fossil fuels.
It's great that we've moved the renewables where we are today and we're for all energy sources. We support solar. We support wind. We support improved energy efficiencies. We believe you need a true all of the above.
So our purpose is to not denigrate or downplay those energy sources. We just believe everybody should have equal opportunity to compete because it's the marketplace that brings the price down. It's the marketplace that drives efficiency, that drives technological innovation.
It was the marketplace that allowed us today to find these vast resources we have in the United States and to produce them so cost-effectively.
When you bring regulation into it, you have a tendency to freeze the technology where it is today because prescriptive regulation says well, here's how you do that. So what happens? You chill innovation.
If you let the market take over, what you'll find is we'll find affordable, reliable, cleaner-burning energy sources all the time and the great beneficiary is the American public, the American consumer.
Monica Trauzzi: Which presidential candidate do you believe would best advance the natural gas industry's agenda?
Jack Gerard: Well we haven't identified any one individual candidate. We've talked to all of them from all political parties and all political philosophies.
We believe overall that the role of natural gas will play a dominant role in the energy equation moving forward just like oil will continue to.
So we're hopeful they'll get over their political divisiveness and at some point sit down and say, "Let's look at U.S. interests. Let's look more globally. What is this opportunity we have to realign the epicenter of energy power in the world and to bring it home here to the U.S.?"
All you have to do is look at what's going on in the Middle East today. Just a few short years ago with that anxiety, if you will, between the Saudis and Iran and others, you have seen the price of oil spike. It doesn't spike today and why is that? Because you've got reliable, ample supplies like in the United States which the global marketplace says, "You know what? We've got alternatives now."
I would hope our politicians, our leadership would come together and become more American-focused in their energy policy because I think that's a very compelling case for oil, for natural gas and for all energy forms because we're truly all of the above.
Monica Trauzzi: I want to talk about just one question on Keystone XL. We've talked about that a lot over the years. Of course the president officially said no to building the pipeline --
Jack Gerard: Very unfortunate.
Monica Trauzzi: We see TransCanada now in the midst of a lawsuit against the administration, but again here, do the market dynamics no longer support the construction of this pipeline, and if a new president comes in, a Republic president who is a Keystone supporter, do the economics for building the pipeline still make sense?
Jack Gerard: No, the market conditions support building a lot of pipelines. Keystone just happened to be the poster child for whatever reason this administration chose.
But let me show you the irony of a decision like has been made. That product, the oil sands of Canada, is still moving to the Gulf Coast to Mexico to be refined by U.S. refiners. The difference is it's moving by alternative forms of transportation. It's moving by rail, by barge, et cetera.
You know what that does? By the State Department's own analysis that was part of this decisionmaking process where the president denied the pipeline, carbon emissions will increase by 42 percent because of that denial.
That's why for some of us we find it hard to reconcile but for the motivation of an ideology on the administration's part, it's hard to reconcile how you can stand up and say well, we're concerned about carbon emissions so we're going to deny a safe pipeline and force the increase of 42 percent increase in carbon emissions. It doesn't make a bit of sense to us. We think it's an unfortunate decision.
There's $1.15 trillion on the sidelines today ready to be invested, private capital in building infrastructure in the United States. That decision has a chilling effect on those investment dollars. If you want jobs in the United States, if you want an efficient energy system, make us the world leader. We're going to have to get over these ideologies and focus more on geology.
We're hopeful politicians will start to do that.
Monica Trauzzi: But this president also signed off on lifting the ban on crude oil exports at the end of last year. This was something that the industry pushed heavily for, but again, with the current market conditions, how beneficial will this actually be to the U.S. industry in terms of numbers?
Jack Gerard: Well, two points, Monica. First is the president signed the bill even though every day prior to its enactment he through his spokespeople expressed opposition to the policy.
So he signed the bill, frankly, because he needed to. It was part of the broader package. One can suggest, well, he did it for this reason, that reason, whatever.
But more importantly about the change in that policy, it is very significant because after 40 years the United States said we're going to take advantage of looking to the global marketplace for opportunity.
Because of the low price today and the market conditions today you might not see a big uptick in it today, but longer term we have sent a signal to U.S. producers. We're going to give you access to the markets. We're going to let you compete with everybody around the world and we're going to let you compete with the Iranians, which under the administration's deal, they're going to lift the sanctions on Iran and allow Iran access to that global market. It's high time we let the U.S. producer have that same opportunity.
That's why that policy change is so important. It tells the rest of the world, "We're serious about this." Unrest in the Middle East doesn't cause a spike in oil price today. Why? Because now we have alternatives called good old US of A production.
Monica Trauzzi: There's been a lot of talk about town since API took over ANGA that you have become the most powerful lobbyist in Washington. Is that how you see yourself?
Jack Gerard: No. I think what we see is the American voter at the end of the day is empowered to lead this country. They do it through a democratic process through elected officials.
We believe the best public policy comes from engaging the American voter. We don't see ourselves as a powerful industry. We see ourselves as an essential industry. We're Americans like everybody else. We live in the communities with everybody else.
Our hope is to work with the American people and really make this American energy renaissance a chance in a lifetime to reposition the U.S., to create good-paying jobs, provide ample energy and make us the superpower of the world.
Monica Trauzzi: Way to punt on that question.
Jack Gerard: That's how we see our ... good to talk to you Monica.
Monica Trauzzi: Thanks for coming on the show.
Jack Gerard: You bet.
Monica Trauzzi: Thanks for watching. We'll see you back here tomorrow.
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