Just a few days ago, the President invited me to join him later this morning at an event in which he will be discussing energy policy and the energy bill. The President and I have spent quite of bit of time over the last few months working with congressional leaders to get comprehensive energy legislation passed this year.

We hope Congress will, within the next few weeks, send the President a bill that ensures adequate electric generation capacity to meet growing demands... strengthens our electric power delivery system… expands the use of clean, renewable energy… and increases our energy efficiency. We are also pushing to ensure that the bill will provide for environmentally responsible energy exploration in ANWR, and include provisions to expand and safely maintain our petroleum and natural gas pipeline networks. All these steps are critical to ensuring our nation’s energy security, which--as all of you know very well--is essential to our nation’s economic security.

Now, when the President invites you to join him for a major speech, you really can’t say no. But I also felt very strongly that I did not want to miss the first NPC meeting during my tenure as Energy Secretary. So thank you for getting up extra early to be here.

Let me take this opportunity to thank Bobby Shackouls for his hard work as Chairman, and congratulate him on the fine work done by the NPC under his leadership. Let me also congratulate Lee Raymond, the incoming Chairman, and wish him the best as he assumes his new duties. In addition, I want to welcome the 14 new Council members.

This organization serves an extremely valuable purpose, and I know how much my predecessors have appreciated your advice and guidance… both informally, through conversations and discussions, as well as formally, in the many outstanding studies you have produced.

The work and effort that goes into producing these reports, and maintaining this organization, is all the more laudatory because of the voluntary nature of your service in this Council. I know that the National Petroleum Council is not a trade organization, but that you exist to serve and advise the Secretary of Energy. So I want to thank all of you for your participation, particularly for the time and effort and expertise which go into producing those studies and reports which so often provide key insights and help to set public policy.

I know this is the case with your 2003 study on natural gas When this study was commissioned, we were facing considerable uncertainty about North American gas supply… although there was quite a bit of certainty about our growing demand for natural gas for electric power generation as well as for use as an industrial feedstock. Liquefied natural gas was on the radar of only a small number of companies. So the NPC conducted an exhaustive analysis of the situation. The result was a truly valuable report that provided a region-by-region analysis of supply and demand, and offered an analytic basis for how LNG could support a growing proportion of our natural gas needs. It included a number of excellent recommendations, many of which have in fact been incorporated into the policy-making process by our Department, the Administration, and Congress. These include questions about how to improve the way we lease and oversee development on federal lands, and to clarify the siting and oversight process for LNG terminals.

Of course, the market for natural gas remains very tight. In fact, the United States has the most expensive natural gas in the world, which is causing significant job dislocation in the chemical industry by shifting production abroad. This is a trend that, as far as I can tell, seems likely to continue. So we need to do more to bring about adequate and affordable supplies of natural gas, both as a fuel source and industrial feedstock.

On that note, I would like to take a moment to look at a few of the specific challenges we currently face in the oil and gas sector, and suggest some ideas that might serve as the basis for future study by the NPC.

Obviously, the issue that has been dominating the headlines is the price of oil. Worldwide, the supply of oil is having considerable difficulty keeping pace with growing demand. Prior to 2004, the average rate of increase in oil demand was about one million barrels per day. But last year, that rate rose to about 2.7 million barrels of additional demand per day--a surge that is outstripping industry’s ability to respond.

This gap between the magnitude of increased consumption, and the capacity of producers to respond, will take some years to close. But even while the industry is working hard to catch up, demand is continuing to rise. The EIA estimates that by 2025 global oil demand will rise from today’s 82.5 million barrels per day to 121 million barrels per day--an increase of almost 50 percent.

The most dramatic manifestation of this is the high price of gasoline. This is an issue that, as you can imagine, I am confronted with on a daily basis. When I am asked about these high gasoline prices, I like to point out that prices are driven in large part by economic growth in countries like India and China, as well as the United States. And while growing energy demand presents a challenge, the underlying cause--robust economic growth--is a good thing.

But of course, growing demand is only part of the equation. I think that, to a considerable degree, the market is also being affected by uncertainty about long-term oil supplies.

Greater transparency about known reserves in producer nations, and more current and reliable information about reserve estimates, would not only be invaluable for investors but could help reduce the uncertainty that puts upward pressure on prices. This is also valuable to policy-makers at the state and federal level, and, indeed, for decision-makers throughout the world.

Having more, and better, information about reserves would also clarify some of the challenges we will be facing in developing future petroleum reserves. We believe that the days of easily accessible oil are coming to a close. That is already the case for the lower 48 in the United States. Increasingly, the global oil demand will have to be met by developing petroleum resources that involve serious technical, and often political, challenges.

The technical challenges, of course, include drilling in deep waters and other harder-to-reach, frontier regions as well as enhanced oil recovery technologies such as CO2 injection and thermal processes. All of which means that such projects will be more capital intensive, have higher risks, and require greater lead times. These are difficult circumstances in and of themselves. But the challenges are multiplied several times over when compounded by political or regulatory uncertainty.

The importance of a secure investment climate, including firm guarantees for the sanctity of contracts and a stable legal system, really cannot be overstated. Who would knowingly invest millions--or indeed billions--of dollars to develop very deep or hard-to-reach petroleum reserves, if the prospects of a fair return on that investment are subject to changing political considerations?

The issue of deeper and harder-to-access petroleum also raises questions about the degree to which heavier crude may fill a larger part of our oil needs. If heavier crude continues to take on a larger share of our oil consumption, we will need to make substantial investments in, and modifications to, our refining assets. In addition to developing more sophisticated refining technologies and operating practices, we will also need to address the environmental impacts that heavy crude presents.

So, it seems to me, there are numerous areas where the NPC’s expertise might be brought to bear. I look forward to discussing this with you in greater detail, as we work together over the months and years ahead.

Before I conclude, I want to take this opportunity to give special recognition to Bobby Shackouls. You may have thought my expression of gratitude to Bobby at the beginning of my remarks was a bit perfunctory. It was, but only because I needed to save a few words of thanks for this moment.

Bobby, would you join me here at the podium?

For your leadership and service as Chairman of the NPC, as well as your simultaneous duty chairing the 2003 natural gas study, I would like to present you with this token of appreciation on behalf of the entire Department of Energy. Your hard work and dedication have given us something to remember you by, and I wanted to give you something to remember us by.

With that, let me conclude.

Thank you all for being here this morning, and especially for accommodating the schedule change. I look forward to working with you, and getting to know you better as we cooperate to meet the various energy challenges confronting us. As the President has said, energy security is essential to maintaining our nation’s strong economic growth and ensuring our long-term prosperity. Those are goals we all share as we strive leave a brighter, healthier, more secure America for future generations.

Thank you.

Location:
Washington, DC