Chevron CEO Says Key to Energy Independence Is Non-Traditional Fossil Fuels

Cites need to approve Keystone XL pipeline, amongst other infrastructure projects

June 11, 2013

Chevron CEO John Watson said the key to American energy independence lies in the Dakotas, Pennsylvania, and other states ripe with non-traditional fossil fuels during a Tuesday speech at the Center for Strategic and International Studies.

Rapid technological innovation over the past two decades has allowed energy companies to expand beyond traditional fossil fuel to oil shale and natural gas. The United States has one of the largest supplies of shale and natural gas in the world; such reserves available for development are 35 percent greater this year than in 2011.

Watson, who has spent 33 years in the energy field, said the United States could ramp up domestic affordable energy production if companies are free to tap into those reserves. Chevron is developing many shale extraction operations outside the Middle East in locations as diverse as Texas, Canada, Central Europe, and Argentina.

He said such expansion must be sustained through infrastructure development in projects such as the Keystone Pipeline, which has been blocked by the Obama administration and congressional Democrats.

"Pipeline is the safest way to move carbon-based fuels ... much safer than moving oil by rail or truck," he said. "Industry has to do a better job of communicating that."

Pipeline development and the expansion of shale development would help workers as well as consumers, according to Watson.

"There is continuous drilling operations with a long horizon—10, 20, 30 years," he said. "It's a jobs intensive business done over a long period of time."

Environmental groups and other Democratic special interests are attempting to stifle the extraction of shale and natural gas from the bedrock of the United States, alleging that fracking causes earthquakes and water pollution. Watson said there is "no scientific" proof of such allegations, but that has not stopped regulators at the Environmental Protection Agency from hindering exploration, drilling, and fracking.

"Eighty-five percent of continental shelf is off limits, the increases [in production] are driven by private land, not so much public land," he said. "The [EPA's] cost benefit analysis has to be realistic ... or the unintended consequences will hurt consumers."

He pointed to Germany, where heavily subsidized green energy has led to skyrocketing prices.

"German renewables have led to costs that are three times as high. ... Germany is finding out that it is tough on industry and tough on consumers," Watson said. "It's not that renewables are bad, but they have to be affordable."

Watson said environmental concerns are taken under consideration, but he looks at it "through the lens of affordability." Governments, however, tend to focus on worst-case scenarios and tax collection, rather than efficiency.

"Some risks have been overstated, so you have to engage the community," he said. "You have low ecological risk, but high political risk."

Watson said the tax code has to be reformed if the U.S. wants to recapture revenue stored offshore by companies like Apple and increase efficiency within the energy industry, which faces a 43 percent effective tax rate.

"The tax code incentivizes companies to conduct operations offshore," he said. "It's not illegal; it's a logical response to incentives."

Watson also said if the United States is able to become an exporter of energy rather than the world's largest importer, it can avoid pressure from foreign producers.

"The vehicle for advancing American influence—transparency, rule of law, environmental practices—is the American company," he said. "[Other countries] bring us in for our technology, but we also bring those [values]."

CSIS president and CEO John Hamre said the United States lacks a comprehensive strategy for energy development, though the government has created a scattered set of policies that facilitate green energy at the expense of innovations in non-traditional fossil fuels.

"We have tax policy that powers windmills, but we don't have energy strategy," he said. "We have to listen to the private sector for insight."

Watson called the subsidies "wasteful" and emphasized that greenhouse gas growth comes from developing nations "aspiring to (America's) standard of living." He said U.S. policy should focus on affordability and energy conservation if it really wants to cutback emissions.

"[Developing nations'] priority is going to be feeding their people, giving them warmth and energy," he said. "The wealthy western nations should make it our priority to produce affordable energy that is less carbon intensive."