Oil and Gas

API chief Gerard talks Obama victory, climate legislation prospects

How will an Obama administration handle key energy policy issues like offshore drilling, oil company tax breaks and alternative fuels? During today's OnPoint, Jack Gerard, the new president and CEO of the American Petroleum Institute, gives his take on the effect President-elect Obama will have on the oil and gas industries. He also discusses next year's climate change talks, expressing uncertainty about a cap-and-trade bill.


Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. With me today is Jack Gerard, the new president and CEO of the American Petroleum Institute. Jack, great to have you back on the show.

Jack Gerard: Well, thank you, Monica. It's good to be here again.

Monica Trauzzi: Jack, you are certainly jumping into things at a very interesting time in American history considering President-elect Obama's intentions for climate change, for energy, renewables, green collar jobs. He's made some comments about oil company profits previously, how do you believe the outcome of this election is going to impact your industry?

Jack Gerard: Well, clearly, it is an interesting time and, as we often say, timing is everything, but I think it's also an historic time. As we know, on Tuesday, there was a lot of history being made and we congratulate Senator Obama for a well-run campaign and obviously a very successful outcome, from his perspective and from many others around the country. As we look at the issues of oil and gas that confront the country today, we view this as an historic opportunity. Now, the reason I say that is, is I was very heartened by Senator Obama's words on Tuesday evening in Chicago when he got up and as he thanked his supporters and many others throughout the country, then he concluded with a very important point. He said, "It's time for us to put our bickering and our partisan politics aside." And what I read into that was I'm going to be the president of the entire United States. We have some tough issues to grapple with, one of them being energy, closely tied to that, our economy. But when he addressed that he said, "It's time to roll up our sleeves to get over those differences and let's address these issues." So, we're heartened by that comment and optimistic and hopeful that we'll be able to come together as a country, that we'll be able to look at the facts surrounding our economic situation, how energy is so important to our economic success and then to grapple with some of those energy questions. So, it's an historic time for all of us. We think it's a great opportunity to resolve some of these long-standing issues.

Monica Trauzzi: Are you at all concerned that an Obama administration coupled with a Democratic majority in Congress may not be as favorable to the oil industry as we've maybe seen in the past few years?

Jack Gerard: Well, my personal view is, having been in town for some period of time is there's a lot of rhetoric that's thrown around during political campaigns. But there's a big difference between running a political campaign and governing and running the country, if you will. So, my sense is it's too early to tell really what the outcome will be. It's one thing to take a position in the loyal opposition, it's quite another to be responsible for what ultimately happens. Our hope is that cooler heads will prevail. That everybody will take a deep breath now as we resolved who will run the country for the next few years. And to step back and say, now, what's in the best interest of the country? How do we continue to compete globally? What can we do to bring the cost to our consumers down, to create new jobs, to create economic livelihood, to get our economy back on the track? And, as I mentioned earlier, energy is key to this. Energy is something we all use each and every day. We've had the great privilege and benefit in this country of having low-cost energy for many, many years. And we're really at a turning point to decide what that future looks like. We want to continue to compete globally. We want to look more to our domestic resources, something that's been off limits, as you know, for 30 years. We believe those are all positive answers and solutions. We think we can reach compromises, that we can come to an ultimate result in the benefit of all Americans using American resources. So we're heartened by the opportunity.

Monica Trauzzi: All eyes are on the Obama transition right now. What are your hopes for Interior and Energy appointments?

Jack Gerard: Well, those two departments are obviously very important to energy because of the nature of what they do, but the Interior Department is very important because they control, obviously, the vast amounts of oil and natural gas we have on federal lands in the United States where a good portion of it resides. A lot of people don't fully appreciate today we heat about 60 million homes in the United States with natural gas. We have enough natural gas reserve in this country to heat those 60 million homes 460 years with just what we know is available out there today. So when we look at departments like the Department of Interior, they will have a lot to say about our ability to bring that natural gas to the market to provide low-cost energy to the consuming public and to each of us as fellow Americans. So, they're very important to us. There's a lot of early speculation, as you know, and that's one thing Washington thrives on in this early guess who's going where, let's speculate what's next.

Monica Trauzzi: That's for sure.

Jack Gerard: This will all settle out and we'll soon know who he's going to pick as part of his team. It will be an early sign as to really he's going to go. A lot of people believe he's a very savvy individual, very disciplined and is going to try to drive some of the policy to the center. We're looking forward to it and we're looking forward to working with those people that he appoints.

Monica Trauzzi: On the offshore drilling point, there's a group of Democrats that have signaled that they'd like to revisit the issue in early 2009. Does the debate on that continue and how does the Democratic majority impact that? And do you see Obama maybe going in and re-instilling the ban in some of those areas where the ban was lifted?

Jack Gerard: Well, we're hopeful that he and his people will be thoughtful enough to recognize that would be a wrong approach for number of reasons, not the least of which would be to deny the American public access to American resources. The other important point I think out there that we need to remember, it was only 6, 7, 8 months ago when the price of gasoline became quite volatile because demand was banging up against the supply that we had available here in this country, thus increasing the cost to our consumers. The American public became focused on that issue like a laser beam and they very quickly said, by overwhelming majorities, two to one, we want you to develop American resources for the benefit of all of us as Americans. What was fascinating to us was is in the exit polls last Tuesday the same numbers are holding up. Two to one said, yes, we need to develop those resources here in the United States. Any immediate effort to turn around and reinstate the ban that has been on these great resources for 30 years would be a big mistake, we believe, not only from an energy development standpoint, but a political mistake. I don't think Senator Obama is going to make that mistake. Now, in the Congress, obviously, there's going to continue to be a debate. As we look at that continuum of various political philosophies there are some who wish that the ban had never had never been lifted. There are many others who recognize that the ban should never have been imposed. But the key to this is everybody in the center there who has now been out and talked to their constituents and their constituents are scratching their heads saying, now, wait a minute. We've put at 85 percent of all of our energy resources in the United States off limits? Why would we do that? Why would we have such a policy in the United States? I think this is one of those areas that we've had clearly a paradigm shift. There is a change in the sentiment of the American public and it will be important for President-elect Obama, his team and everybody else for that matter regardless of what political persuasion you are, to listen to the American public. Let's develop those resources for the benefit of all Americans.

Monica Trauzzi: You've signaled that API will engage Congress on climate next year. What's your game plan for next year's climate legislation talks? It's expected to get a little heated next year.

Jack Gerard: Well, our game plan, Monica, really hasn't changed over the past many years and what I mean by that is we believe the key to climate policy, the key to energy policy is a well-informed public and a well-informed group of public policy officials that represent that public. So, from our standpoint, our game plan is pretty straightforward. It's all about education. When the public really understands the issues surrounding energy, surrounding climate, we think they make good choices. We think they're great communicators. The public is very smart. They get it and they get it quickly. So, our intent is to really just bring people up to speed on to what various options mean and how it might impact our public at large and what it means for us as a society. In the United States we've been very fortunate for many years; we've had low-cost energy. Now, perhaps we begin to take that for granted and now we have fundamental decisions to face. Will we bring additional supply into the marketplace to allow us to grow our economy, to create more good paying jobs, and to allow us to enjoy our standard of living? Or will we arbitrarily make decisions surrounding climate or energy policy that put a lid on that economy? We think you can win-win in this situation if you do it well.

Monica Trauzzi: Will you support a cap-and-trade plan?

Jack Gerard: We will engage actively in the climate debate. We have some of our members who believe cap and trade might be the right approach, some who believe a carbon tax might be the right approach. We think, at this point in the discussion, it's important for us to step back once again and look at that broader picture and to intertwine energy and climate policy. We believe you can't really develop a climate policy in a vacuum. Climate policy is really all about energy policy, so we are hopeful that the two will be joined together. And at the end of it we can come up with something that will appropriately address the climate issue, but at the same time address our energy challenges for the benefit of the public.

Monica Trauzzi: And something many would argue that helps address both the energy challenges and climate challenges are alternatives. We're hearing a lot of talk about second-generation biofuels, hybrids, ethanol, methanol, other types of alternatives all around the country. How concerned are you about the flood of alternatives that we're hearing about that are coming into the marketplace? And how closely are you watching these competitors, which they essentially are at this point?

Jack Gerard: Well, we really don't perceive them as competitors. When you look at the projections looking to the out years, we're going to need a lot of energy. It needs to come from all different sources. We're all for diversity. We believe we should have a diverse mix within our energy basket here in the United States. One thing a lot of people don't appreciate or understand, when you look at emerging energy technologies is the oil and gas industry that invests over 65 percent of every dollar spent in developing those emerging technologies. So we're about all sorts of energy. We're looking at gasification technologies. We're looking at some of the renewables we talk about, solar facilities. BP, one of our big important members has one of the largest solar plants in the country right out here in Maryland in kind of an extended suburb of Washington, DC. So, we're in that game. So it's not a question of either or. It's a question of having a basket and putting as many eggs as we can in that basket. We're not concerned about competition. We will be part of that competition and that's good for the country. It helps keep our costs low. It allows us to address and create new technologies. The United States is a great innovator. We're the envy of the world. We don't want to stymie that in any particular industry segment, but we also need to let the free market work. So if you put a combination of free-market principles with innovation with research and development we will yet lead the world in these areas and you can fully expect the oil and gas industry and our investments will be a big part of that.

Monica Trauzzi: You mentioned oil and gas prices earlier, they were steadily climbing at the beginning of this year through the summer, all of the sudden dropped, which made many people very happy. Where do you expect prices to go short-term and long-term?

Jack Gerard: We really don't know where price is going to go because price is determined by the laws of supply and demand. The cost to consumers every day, be it gasoline, be it home heating oil, be it natural gas to heat and power their homes, the industrial complex utilities, etc., it's all determined by that law of supply and demand. And we can't repeal that law and we can't change it, nor do we intend to do so or attempt to try. But the important thing to remember is as the price was beginning to rise what was happening is demand in this country as our economy grew, as the world economy grew, China and India and others are now big consumers of energy that weren't there 10 years ago. The demand for energy in the world was beginning to rise quickly, but we hadn't brought enough supply into the marketplace. So the real challenge for us here in America is to look at this vast supply we have in this country and say, now, what are we going to do about that? The economy has begun to contract unfortunately. We need to create more jobs. We need to get our economy headed back in an upward direction. But at some point we're going to come right back to that ceiling if we don't get thoughtful and bring additional supply into the marketplace. That's why we have a window of opportunity during this tough economic time to look long-term on energy policy and say how much more oil can we bring to the marketplace in the United States? How much more natural gas? We have vast supplies of it. Now is the time to make those decisions for the long-term and say let's go to the outer continental shelf, let's go to our onshore capability and let's develop those resources and open them up so the supply will increase. So, when that demand begins to rise, we can bring more supply online, it will have less impact on the cost to the consumer, we will be able to see prices remain more stable over the long haul.

Monica Trauzzi: You mentioned job creation and President-elect Obama has said that he would like to create 5 million green jobs. Is that a number that you think we can reach?

Jack Gerard: Well, I think that's probably an optimistic estimate, but that's OK. We need to create all the green jobs we can in this country. What we don't want to forget is that we have 1.8 million people currently directly employed in the business of oil and gas in the United States. We have another 4 million people whose jobs, occupations, and livelihoods are directly tied to the oil and gas industry. So, in a nutshell, we have 6 million people in the United States who are directly employed and indirectly dependent upon the oil and gas industry. So, what's important as we look to the future, as we develop energy policy for the future, we need to create the green jobs we can. But it doesn't have to be an either or, nor should it be. We need more oil and gas in this country. We need more green jobs. We need more green energy sources if you will, however one might define that. So we can have it both ways. This can be a win-win. We don't have to pick one end of the extreme or the other. So we should look at those great employees, those great Americans who create and develop the oil and gas we enjoy today and figure out how to create more jobs in the oil and gas industry at the same time we're looking to the emerging technologies to create other jobs in this society. Again, the oil and gas industry, we're 65 percent of all investments that go into these emerging technologies. It's going to be important to make sure we're healthy, continue to make those investments for the long-haul to get to this new energy paradigm.

Monica Trauzzi: All right, we're going to end it right there on that note. Thanks for coming on the show.

Jack Gerard: Thank you Monica. It's good to see you again.

Monica Trauzzi: Nice to see you in your new position. And thanks for watching. We'll see you back here tomorrow.

[End of Audio]



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