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Executive Speech

Remarks of Thomas F. Farrell II
Chairman, President & CEO
"America's Energy Future"
Policy Summit Roundtable
The Republican Governors Association
Cincinnati, Ohio
Sept. 21, 2010

Thank you, and good morning.
It is a privilege to join my fellow panelists and distinguished governors for today’s discussion about our nation’s energy future.

The topic is enormously broad, complex – and important.  The need for energy – and the need to manage the consequences of energy use – presents a public policy challenge worthy of the best ideas that all segments of our society can muster.

I commend the RGA for convening this summit to provide us with a forum for exchanging ideas and sharing perspectives about our policy options going forward.

We could blame the current stalemate in national energy policy on a number of things – partisan politics, a weak economy, the Wall Street meltdown, competing national priorities, a failure of leadership.

All of these factors have played a role.  But I believe there is something even more fundamental at work, something that underlies the gridlock resulting from our attempts to articulate a long-term energy vision for our nation.

That “something” is an alarming gap between what is real knowledge and what is imagined knowledge of energy issues. 

Quite frankly, our nation suffers from a low level of energy literacy.  It is an unfortunate but understandable situation. 

All but the youngest generation of Americans grew up in an era of relatively cheap and abundant energy.  In past decades, there was little need to be energy conscious, to know where energy came from, how much it cost, how it was used, and how it affected the economy, the environment and our national security.

Not so today.

The energy challenges we face in the 21st century are fundamentally different.  The next energy system that we construct – one designed to meet our social, economic and environmental goals – will have to contend with larger populations, fewer resources and higher costs.

Greater numbers of Americans need to become smart energy consumers and informed citizens in order to contribute to the discussions.

There are no quick fixes or silver bullets that will change the way Americans think about energy.  But we can begin by dispelling one of the most persistent myths about energy – a myth that continues to distort and disrupt our efforts to shape a long-term national energy strategy.
That is the notion that America can and should achieve complete energy independence.

This idea has been around since President Nixon announced his plans for “Project Independence” following the 1973 Arab Oil Embargo.  The same call for action has been made by every President since.

Every U.S. president has waved the banner of independence and promised a better economy and a stronger country if America could liberate itself from foreign sources of energy – especially imported crude, which now accounts for about 60 percent of our total oil consumption – double the level in President Nixon’s day.

Despite the unrelenting rise in oil imports over the past four decades, the dream of independence refuses to die. It is a vision that resonates deeply within the American psyche.  One could argue that it goes to the very heart of America’s self-image as a nation that values freedom, autonomy and self-sufficiency. 

As appealing as the idea might be, complete energy independence is a mirage – an impractical and unattainable goal.  It contradicts the reality of today’s global economy and a five-trillion-dollar-a-year global energy industry in which the U.S. is the largest consumer and the third largest producer.

Oil sits astride the world’s energy economy, especially the transportation sector, which is 95 percent dependent on crude.  That is largely because no other fuel comes close to offering the same level of energy density and ease of handling.  Potential alternatives, such as bio-fuels, compressed natural gas and electric vehicles, hold promise but will take years and possibly decades to develop and deploy at commercial scale.
The U.S. currently consumes about 19 million barrels of oil every day, of which more than 11 million barrels are imported.  But oil is not the only critical commodity that we import.  There are many others, including substantial quantities of natural gas in liquid form, about 80 percent of our uranium, and even significant amounts of coal, our most abundant domestic resource.

By 2015, in fact, the Department of Energy projects that the U.S. will go from being a net coal exporter to a net coal importer, with most foreign shipments coming from South America, Indonesia, China and Russia. 

Does this mean we should not try to reduce our imports of foreign oil?  Of course not.  We should – and we can – but we must recognize that it will not happen easily.

My point is this:  Energy markets are interconnected and global in scope.  And international energy trade is an important tool for bringing nations together and maintaining global stability.  So complete independence from the world market is simply not possible. 

In the future, we can expect energy markets to become even more integrated as the demand for energy grows and new energy supplies become more difficult to find and more expensive to produce.  And we will certainly see greater linkage between energy and environmental policies as lawmakers struggle to balance society’s aspirations for economic progress and a cleaner environment.

These and other energy market realities argue for a concept other than independence – with all of its isolationist and protectionist overtones – to serve as the cornerstone of U.S. energy policy.

I suggest energy security as a more meaningful principle around which to frame a national policy – one that recognizes the interdependencies, scale and complexity of the energy supply system.

Energy security is rooted in a number of different things: 

  • Supportive legislation and regulation that provide access to and responsible development of our domestic resource base:  natural gas and oil, both onshore and offshore, as well as coal and uranium.
  • A modernized, smart power grid that empowers consumers and moves electricity reliably and efficiently to population centers where it is needed most;
  • Increased conservation efforts that promote reduced energy demand, lower costs and greater environmental quality;
  • Robust international relations and trade that help maintain stability and long-term economic growth;
  • And perhaps most important of all, reliance on the full range of energy sources at our disposal.

Energy diversity is really the key to America’s energy security.  As any decent financial adviser will tell you, the best hedge against a market is a diversified portfolio.  The same is true for energy.

As a nation, we are in no position to pick a few favorite sources of energy and exclude others.  We need to draw on every resource at our disposal – coal, nuclear, oil, natural gas, renewable energy and also more aggressive conservation.

A glaring example of the nation’s energy illiteracy is the common linkage between the use of renewable energy and the call to reduce reliance on foreign oil.
Oil actually has little influence on the power industry.  Oil-fired generation accounts for only one percent of the nation’s electricity.  Those who claim that we need to use more renewable power to reduce our oil imports are confusing cars and trucks, which run on liquid fuels, with power stations that produce electricity, principally from solid and gaseous fuels.

The way to reduce our reliance on foreign oil is to rapidly advance the electrification of our surface transportation industry – recognizing that the electricity must come from somewhere – most likely from nuclear, coal and natural gas.

Renewable energy sources – wind, solar, biomass, geothermal and the like – are an increasingly important part of our energy future.  They have real environmental advantages, but they are  only useful in limited applications, largely because of their high cost and intermittent nature.  

They will always remain that way unless we crack the code on storing electricity at a very large scale.  That technology is nowhere in sight.

The notion that we can enact immediate and massive change to our dominant energy systems – meaning fossil fuels and nuclear – is pure fantasy.   Vice President Gore and others who have spread that message are offering the American public nothing but false promises.

One inconvenient but unavoidable truth about energy transitions is that they take generations to complete, not months, years or even decades. 

What that means is that we will have to continue to rely heavily on fossil fuels as the source of about 80 percent of the world’s energy supply – now and for at least the next several decades as we transition to a new global energy economy.

Lasting energy security is not going to be easy to achieve.  In fact, it will be extremely difficult.

That is not only because of the enormous scale of the challenge, but also because many of our assumptions about energy are not grounded in fact – such as the time and money it will take to develop and deploy new technologies; the commercial availability of alternative energy sources; or the speed with which we can shift to a low-carbon economy.

We can achieve a balanced and well-designed national energy policy and have a cleaner and more secure energy future.  But it will not come quickly or cheaply or without a higher degree of candor and straight talk with the American people.

In sum, if we have the courage to move from the realm of mythology to 21st century reality, we might just succeed in shaping an energy future that is to our liking – instead of letting it shape us.

Thank you.

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