“Oil and natural gas, jobs, and U.S.

energy policy” by Jack Gerard

A speech to the Clinton School of Public Service
October 22, 2010

It’s good to see all of you today. Thanks for the welcome. It’s an honor to speak at the
Clinton School.

President Clinton presided over a time in our history of extraordinary economic growth
created by new private sector innovation and investment. The experience of that era is
important to remember because we need more private investment to help rebuild our
struggling economy and put people back to work.

My message to you this afternoon is that the U.S. oil and natural gas industry, which
today supports 9.2 million American jobs and 7.5 percent of our economy, can play an
important role in this rebuilding effort by producing at home more of the oil and natural
gas our nation will be demanding. Developing that energy would create thousands of
jobs and return to our government billions of dollars in taxes and royalties.

With deficits spiraling upwards, nearly 15 million Americans out of work, and stimulus
dollars less effective than hoped, increased domestic oil and natural gas development
makes more sense now than ever. Many Americans see the value. Oil and natural gas
companies would welcome the opportunity. However, government policies will largely
determine how much companies are able to increase their investment in U.S. projects
and how many additional new jobs can then be created.

Some people may be skeptical about encouraging more development of America’s oil
and natural gas reserves. We’re running out of oil, some contend. We don’t have
enough resources to make it worthwhile to produce. We can’t risk the environmental
damage, some say. Or, we have better options in renewables.

These concerns deserve a response.

Oil and natural gas are perhaps the most versatile and beneficial forms of energy
Mother Earth has ever produced. They are the foundation of our transportation
systems, they heat and cool our buildings, they generate much of our electricity, and
they provide the petrochemical building blocks for thousands of consumer goods.

Petrochemicals are used to make everything from contact lens to computer chips to
clothing. They are in our backyard decks, our cell phones, our paint, our fertilizers, our
athletic equipment and our kitchen appliances.

You are surrounded by petrochemical-based objects and devices every time you drive
your car or watch a movie at home.

Oil and natural gas have been and continue to be engines of economic development
and wealth creation around the world. Between 1998 and 2008, China nearly doubled

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its use of oil; India consumed almost 60 percent more. And nations with significant oil
and natural gas reserves are as eager to develop them as we seem reluctant to develop
ours.

While important, oil and natural gas are definitely not the complete answer to meeting
our energy requirements. We need all forms of energy. Energy demand is growing. In
2035, the United States will consume 14 percent more total energy. World consumption
will rise even more.

Renewable energy will certainly expand, but to meet rising energy demand oil and
natural gas will continue to have to supply both the world and the United States with
most of their energy.

In 2008, oil and natural gas accounted for about 61 percent of America’s energy, says
the U.S. Department of Energy. By 2035, they will supply about 55 percent.
Renewable energy – projected to increase almost 200 percent from 2008 – will still
provide only 13 percent.

Some suggest we should accelerate our use of renewable energy through a crash
effort, something akin to the Manhattan Project. But the scale and costs of fully
transforming our energy economy over the short term would be enormous.

Even the nearly 200-percent increase in renewables our government projects by 2035
assumes continuation of very large green-energy subsidies and rapid technological
progress.

Experience tells us shifting to new energy sources can take time. It took 75 years for oil
to replace half of coal’s portion of the energy mix once oil started being broadly used.

Let me reiterate: Renewables are important. No one knows that better than U.S. oil and
natural gas companies, which have been investing in them for many years, long before
“green” energy became a popular term. Biofuels, geothermal energy, solar power,
wind, advanced batteries – you name it, our industry has aided the development. We
understand our nation will use renewables in increasing amounts. We will be providing
some of those renewables. But the energy reality is that oil and natural gas will
continue to be a critical part of the energy mix.

Given this reality, we essentially have two choices.

Choice number one: we encourage more production of our own supplies of oil and
natural gas to help meet future demand, putting more Americans to work and delivering
substantial revenue to our government.

Or, choice number two: we accept policies that discourage development at home,
forcing us to import more. That means spending more dollars overseas for oil and

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natural gas, weakening the nation’s energy security, transferring potential U.S. jobs to
foreign workers, and spurring growth in foreign economies rather than our own.

The first option – facilitating more domestic development – is possible because there is
plenty of oil and natural gas still to be developed in the United States. Estimates
suggest that, at current rates of production, there are 70 years of oil and more than a
century’s worth of natural gas recoverable in the United States.

And, if history is any gauge, these estimates are conservative. Technology will continue
to improve, upping the amount of recoverable resources available. What we cannot find
or produce today, better technology will help us find and produce tomorrow.

We’ve been warned for at least a century that we’ve been “running out of oil.” In 1914,
the Bureau of Mines said the nation’s oil reserves would be exhausted by 1924. That
and every succeeding prediction of resource exhaustion – and there have been many –
have been wrong.

Until a few years ago, U.S. reserve estimates for natural gas suggested we would soon
need to be importing more from Canada or overseas. Since then, natural gas reserve
estimates have multiplied thanks to technological improvements, such as directional
drilling and hydraulic fracturing, that have given us access to huge plays of shale gas in
many parts of our nation, including Arkansas.

We also have much undiscovered oil as well as natural gas in Alaska and in our
offshore areas, which – outside of the Gulf of Mexico – have been little explored or
developed because of government prohibitions.

The first energy choice – more domestic oil and natural gas development – also means,
as mentioned, important benefits. Producing more of our oil and natural gas would
mean lots of new jobs for Americans and large amounts of revenue for our government.

In 2008, ICF International studied the jobs and revenue potential of developing onshore
and offshore federally owned areas that have been off limits. The study shows that full
development could support as many as 160,000 jobs in 2030 while increasing oil
production by 2 million barrels a day. Two million barrels a day are about what we now
import from the Persian Gulf. Full development of these public resources also could
generate over $1.7 trillion in government revenues.

The development of shale gas also could create big economic benefits. The most
impressive U.S. prospect is the Marcellus Shale in Pennsylvania, West Virginia and
New York. It is one of the largest natural gas prospects in the world.

When other businesses and industries in Pennsylvania and West Virginia were
shedding jobs last year, Marcellus natural gas development, still in its relative infancy,
created 57,000 new jobs, a recent study from Natural Resource Economics reports.
The study also estimates that between 100,000 and 280,000 jobs could be created in

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2020 in the three states, with total potential annual revenue to government exceeding
$6 billion.

Arkansas also has benefited from oil and natural gas development. Oil and gas support
almost 70,000 jobs in Arkansas and are about 6 percent of the state’s economy. Many
of the jobs are new, reflecting stepped up natural gas development. A 2009 report
prepared by the College of Business here says that between 2004 and 2008 oil and gas
sector employment rose by more than 120 percent in Arkansas compared with less than
a 4 percent increase in total state employment. This oil and natural gas job growth may
help explain why Arkansas’ unemployment rate today is still below the national average.

We can produce more jobs across our nation by developing more of our oil and natural
gas. Equally important, we can protect the environment while doing it. We know
development must be done in an environmentally responsible manner. We work hard to
do that. And, frankly, our environmental record is far more positive than most
understand.

The Gulf spill was tragic and damaging, but it also was unprecedented. Over the past
65 years, the industry has safely drilled more than 40,000 wells in the Gulf. The
accident in April was a shock. Nothing like it had ever happened before in U.S. waters.

But, as unprecedented as the spill was, so, too, were the response and cleanup and the
efforts by the industry and by government to work to reduce the risks of a similar event
ever happening again. Regulatory oversight has increased. The industry is reviewing
and improving its own standards and producing new guidance for safer operations. And
some of our largest oil and natural gas companies are creating state-of-the-art
technology to better address deepwater accidents.

The industry has made progress in other areas, too. Because of cleaner, more fuel-
efficient cars and cleaner-burning fuels, tailpipe emissions have substantially declined
over the decades and air quality has steadily improved, even as our population and
economy have grown much larger and the number of miles driven by Americans has
risen sharply. It takes 33 of today’s new cars to equal the emissions of a single vehicle
in 1970.

To address climate change, the industry has increased refinery efficiency and reduced
emissions through the use of combined heat and power technology. It has substituted
clean-burning natural gas, which produces little more than half the greenhouse
emissions as coal, for higher emission fuels. And, between 2000 and 2008, it invested
more than $58 billion in low and no-carbon technologies, including renewable fuels.
That was more than either the federal government or the rest of the private sector
combined.

Since 1990 the industry has spent almost $200 billion on its environmental programs –
or $639 for every person in America. That reflects our ongoing commitment to

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improving environmental performance even as we produce more energy, more
efficiently, to power our economy and improve our lives.

Our strong environmental performance reinforces the argument that producing more
domestic oil and natural gas makes sense. However, development doesn’t happen
wherever and whenever the industry chooses, nor should it. Government policies affect
how many projects happen, where they happen, and how fast they happen.

We think government policies should harmonize our energy and environmental goals,
encouraging responsible development that creates jobs and helps drive our economy.

We need increased access to where oil and natural gas are found, not in national parks
or fragile ecosystems, but in other places on public lands and waters where energy
resources are present. Almost 30 percent of our nation’s land is public land, and our
offshore waters are controlled by government. Companies pay the government billions
of dollars annually for leases to develop this oil and natural gas and billions more in
royalties once energy production begins.

We also need common sense regulations administered efficiently. Regulations burden

every business and family. Every year, no matter what party is in power, the federal
government issues thousands of new rules, which are layered on top of existing ones.
Based on data from the Small Business Administration, the average annual cost of
regulations to each American family works out to about $15,000, a sum invisibly buried
in the cost of goods and services.

Overcomplicated rules increase that burden, not just by requiring businesses to take
unnecessary steps with little safety or environmental payoff, but by creating uncertainty
and delay that can discourage investments and new jobs. We’re concerned the
government’s new offshore safety rules will mean a lengthy and unpredictable
permitting process. We support much that is in the rules, but, if processing permits
leads to extended delays, that will reduce investment and cost jobs.

Uncertainty also is an issue with EPA’s new greenhouse gas regulations. Millions of
businesses big and small, including refineries, hospitals, shopping malls, apartment
buildings, small manufacturers and many Main Street businesses that emit greenhouse
gases will ultimately have to have a government permit to operate. Although the
regulation starts this January, no one knows what businesses will have to do to get the
permits, when they will get them, or what the new emission controls will cost. This is
going to slow investment and job creation.

Good government policy that encourages investment and jobs also means sound and
fair tax policy. I know Americans expect the oil and natural gas industry to pay its fair
share of taxes. Let me assure you, it does. The largest oil and natural gas companies
pay income tax at a 70-percent higher effective rate than other companies represented
in the S&P industrials group. In 2006 through 2008, major oil and gas companies paid

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or incurred roughly $280 billion in income taxes. Adding to this tax burden isn’t justified
and would cost jobs.

The nation needs energy and jobs – jobs to build the economy, energy to drive it. The
U.S. oil and natural gas industry can safely and reliably produce both. Since 2000, U.S.
oil and natural gas companies have invested almost $2 trillion in new projects, including
green energy and environmental improvements and more oil and gas development.
Between 2004 and 2007, these investments led to the creation of nearly two million jobs
throughout our economy.

In the months and years ahead, the nation has important decisions to make about its
energy future. They may be the kind of decisions those of you studying at the Clinton
School will eventually debate and help make – and which all citizens can and should
have a say in. They are decisions that will affect real people here in Arkansas and
throughout our nation.

Whatever decisions we make, our hope is they recognize a basic reality: We live and
will continue to live in an energy diverse world. We use and will continue to use oil and
natural gas even as the energy landscape changes and renewable energy grows in
importance.

It makes sense to produce more of this oil and natural gas that we know we will use
from domestic supplies here in the United States. That will put hundreds of thousands
of Americans to work, produce many billions of dollars in additional revenue for our
government, and enhance our energy security. It also will help keep our nation strong
and prosperous for generations to come.