TRUTHABOUTOILANDGASOLINE_PRIMER:DRAFT

  • 505 views
Uploaded on

 

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
505
On Slideshare
0
From Embeds
0
Number of Embeds
0

Actions

Shares
Downloads
11
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer March 17, 2008
  • 2. America is in a global struggle for energy security and many Americans lack a full understanding of the oil and natural gas industry. Consumers and policymakers alike need fact-based information. API has assembled this oil and gasoline primer to encourage a constructive public policy debate on meeting the growing energy needs of consumers and industry. Table of Contents Future Global Energy Demand Page 1 The Myth of “Big Oil” Page 2 The Largest Oil and Gas Companies Page 3 Diesel, Gasoline and Crude Prices Page 4 Average Price Increases Page 5 Key Factors Affecting Markets Page 6 World Oil Consumption Page 7 OPEC Surplus Production Capacity Page 8 EIA Price Forecast Page 9 Commodity Performance Page 10 WTI in Dollars and Euros Page 11 What Consumers Are Paying Page 12 Oil and Gas Earnings Page 13 Comparing Industry Earnings Page 14 Who Owns the Oil Companies? Page 15 Stock Repurchases Page 16 Income Taxes Paid Page 17 Taxes Paid by Oil Versus Manufacturing Companies Page 18 Capital Spending: Where Funds Go Page 19 New Investments Increasing Page 20 Refinery Capacity Expands Page 21 Projected Refining Expansion Page 22 Environmental Expenditures Page 23 U.S. Crude Oil Resources Page 24 U.S. Natural Gas Resources Page 25 Efficiency and Energy Demand Page 26 Future Energy Demand Page 27 Ethanol and Brazil Page 28 U.S. Corn Use Page 29 Technology Investments Page 30 Emerging Energy Investments Page 31 Ensuring Our Energy Security Page 32 America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer
  • 3. Future Global Energy Demand Source: EIA, World Energy Outlook, 2007 Recent concern about crude oil and gasoline Recent forecasts by the U.S. Department of prices underscores the link between energy Energy’s Energy Information Administration (EIA) and the economy. Most energy analysts agree estimate that sustaining a 4.1 percent rate of that sustaining even modest economic growth annual growth in the global economy to 2030 worldwide for the next several decades will require an expansion of 35 million barrels will require massive new investments in oil per day in global oil supplies. That is an increase and natural gas. This also presents a great of 42 percent. The growth in demand for opportunity for the renewable fuels that will natural gas worldwide is expected to be even be an important part of the future fuel mix. larger, increasing by 64 percent by 2030. Despite significant growth of renewables and improvements in energy efficiency, more than half of the world’s energy demand will be met in 2030 by oil and natural gas, as is the case today. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 1
  • 4. (As a Percent of Proven Reserves) It is also important to understand how the energy Faced with such competition, the investor-owned world has changed. Forty years ago, world oil oil companies have scaled up within this new reserves were largely the domain of the investor- world—principally through mergers and owned, international oil companies (IOC), based acquisitions—by creating ever larger efficiencies, principally in the United States. Most people today greater technological and project management assume that international oil companies are little prowess, and substantially broader competitive changed from decades ago, still sitting astride the access to capital markets. bulk of these world oil reserves. That is no longer the case. Today, world oil reserves are 80 percent owned by the national oil companies of foreign governments, many formed during the past 30 years. Only 6 percent of world-wide oil reserves are now held by investor-owned oil companies. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 2
  • 5. 2006 Largest Oil and Gas Companies (percent of worldwide reserves) Source: World reserves of 1. 3 trillion barrels as of January 1, 2007 according to Oil and Gas Journal December 24, 2007 Leading companies: Oil and Gas Journal September 17, 2007 Even the largest U.S. based international investor owned company accounts for just a small fraction of the world’s oil reserves and production. 2006 Largest Oil and Gas Companies (percent of worldwide production) Source: Estimated world total of 72.4 million barrels a day in 2007 according to Oil and Gas Journal December 24, 2007 Leading companies: Oil and Gas Journal September 17, 2007 America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 3
  • 6. Diesel, Gasoline and Crude Prices Until recently, gasoline and diesel fuel prices Diesel prices also are higher today, because it closely tracked the cost of crude oil. But over is a more advanced, low-sulfur fuel. Such fuels the last year the supply and demand picture help improve air quality but they are more has changed. Demand for gasoline has been expensive to refine. Today’s diesel contains less met with strong supply fed by record refinery than 15 parts per million of sulfur, compared production and high levels of imports. By with 500 parts prior to 2006. contrast, the market for diesel is much tighter. While production has been strong, supplies have been limited by weaker imports. The Europeans are exporting less to the United States, because they are keeping more diesel for domestic consumption. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 4
  • 7. Average Price Increases Year to Date (cents per gallon) — January 1 to March 14 Source: NYMEX The price of West Texas Intermediate crude oil of this year compared to the same period last has increased by 92 cents per gallon for the year. Diesel prices are averaging 89 cents more period from January 1 through March 14th per gallon and gasoline 78 cents per gallon more. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 5
  • 8. Key Factors Affecting Markets Economists like to say that it all boils down to Tight supplies have been aggravated by political supply and demand. But there are many factors instability, resource mismanagement and affecting the tried-and-true laws of economics – weather. The Iraq insurgency, civil unrest in and those factors have contributed to today’s Nigeria and political uncertainty in Venezuela high-demand, tight-supply world energy market. are among the examples. And hurricanes in For starters, demand is very strong, coming from the Gulf of Mexico have affected operations mature economies like the United States and in both the United States and Mexico. Europe plus the developing economies of countries like China and India. And as per Finally, the decline in the value of the U.S. capita income rises in those developing dollar against other countries has put American countries, the demand for energy is expected consumers at a disadvantage. American to continue growing. consumers must now pay more for crude oil. And countries with stronger currencies like the Euro and the Yen have used their advantage to purchase more energy products and marginally increase global demand. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 6
  • 9. World Oil Consumption Source: EIA, Short-Term Energy Outlook, March 2008 The world’s demand for oil has increased sharply Non-OECD countries are projected to account for in recent years, rising from 78 million barrels per 1.1 million barrels per day of world consumption day in 2001 to 87 million barrels per day in 2007. growth in 2008, with gains concentrated in China, The U.S. Energy Information Administration the Middle East oil-producing countries, India, and expects world oil consumption to grow by 1.3 other Asian countries. million barrels a day in both 2008 and 2009. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 7
  • 10. OPEC Surplus Crude Oil Production Capacity Source: EIA, Short-Term Energy Outlook, March 2008 The amount of surplus crude oil capacity Although the U.S. Energy Information to meet surges in demand or disruptions in Administration is calling for a decline in supply has declined sharply in recent years. spare capacity in 2008, they see the Just a few years ago it stood at nearly 6 million potential for improvement in 2009. barrels per day. Today it is at about 2 million barrels per day. This illustrates that tight fundamentals are at work in the marketplace, increasing the potential for volatility in energy markets. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 8
  • 11. EIA Price Forecast Source: EIA, Short-Term Energy Outlook, March 2008 Looking ahead, the Energy Information EIA expects the projected higher costs for crude Administration projects the annual price of oil will be passed on to all petroleum product WTI crude will increase from an average of $72 prices with retail gasoline prices expected to per barrel in 2007 to $94 per barrel this year. average 40 cents per gallon more in 2008. But some easing of the oil market by 2009 is expected due to increased production outside of OPEC and planned additions to OPEC capacity. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 9
  • 12. Commodity performance year to date, January 1 through March 14 (2008) Source: Deutsche Bank Global Markets Research, Bloomberg In addition to the rising cost of energy materials, WTI and Brent) and refined products like gasoline there has been a worldwide increase in the cost are compared with other commodities, the of other commodities because of strong demand price increases experienced with energy related created by economic growth. When crude oil (e.g. commodities are about average. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 10
  • 13. West Texas Intermediate Crude (WTI) in Dollars and Euros Source: Federal Reserve Bank of St. Louis, EIA, NYMEX During the last year, the depreciation of the U.S. dollar against other countries around the world has accelerated. For American consumers it means they are more affected by rising crude oil prices than the citizens of other countries that use currencies like Euros or Yen. Conversely, as oil prices have gone up all around the world, the price increase has been less for countries who have a strong currency other than the U.S. dollar. West Texas Intermediate Crude (WTI) in Dollars and Yen Source: Federal Reserve Bank of St. Louis, EIA, NYMEX America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 11
  • 14. What consumers are paying for at the gasoline pump 58% 17% 10% 15% 8.3% Earnings* Source: Average of gasoline components from January through December 2007 as reported by EIA. *Earnings differ by company. Figure represents average 2007 industry earnings for every dollar of sales. The biggest single component of retail gasoline accounted for 17 percent of the retail price. prices is the cost of the raw material used to Retailing added another 10 percent to the retail produce gasoline—crude oil. For example in 2007, price of gasoline. Taxes accounted for 15 percent crude oil alone makes up 58 percent of pump of the price of gasoline. prices. Refining made the crude oil into gasoline America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 12
  • 15. Earnings of Dow Jones Industrial Average (DJIA) Companies and Oil and Gas Companies (net income divided by revenue) The information contained in this document is based on publicly available information. The companies included in these documents are based on the Dow Jones Industrial companies. However any reference to Dow Jones is for informational purposes only and should not be construed as an affiliation with, sponsorship of, or endorsement of the information or documents in which the Dow Jones name is referenced. The fourth-quarter and full-year 2007 earnings for fact, the average earnings rate for the Dow Jones the oil and natural gas industry are very large companies is only slightly below the earnings rate because the companies are very large. But the for the oil and gas industry. And there are other earnings are not out of line when they are industries that do far better than oil and gas, compared with the earnings rate of other Dow including pharmaceuticals, computers and Jones Industrial Average companies by measuring chemicals. the cents earned for every dollar of revenue. In America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 13
  • 16. 2007 Third Quarter Earnings by industry (net income/sales) Sources: Based on company filings with the federal government as reported by U.S. Census Bureau and Oil Daily. It’s a common question, but the answer may be Profit margins, or earnings per dollar of sales somewhat surprising: oil and natural gas earnings (measured as net income divided by sales), are typically in line with the average of other provides one useful way to compare financial major U.S. manufacturing industries. This fact performance among industries of all sizes. is not well-understood, however, in part because reports usually focus on only half the story—the The latest published data for the third quarter profits earned. of 2007 shows the oil and natural gas industry earned 7.6 cents for every dollar of sales Profits reflect the size of an industry, but they’re compared to 5.8 cents for all U.S. manufacturing not necessarily a good reflection of financial and 9.2 cents for U.S. manufacturing, excluding performance. the financially challenged auto industry. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 14
  • 17. Who Owns “Big Oil”? (Holdings of Oil Stocks, 2007) 5.0% Other Institutional Investors 1.5% Corporate Insiders 14.0% 29.5% IRAs Mutual Funds and Other Firms 23.0% Individual 27.0% Investors Pension Funds Source: SONECON, The Distribution of Ownership of U.S. Oil and Natural Gas Companies, September 2007 Contrary to popular belief, and what some there’s a good chance it invests in oil and politicians might say, America’s oil companies natural gas stocks. If you have an IRA or aren’t owned just by a small group of insiders. personal retirement account, and 45 million Only 1.5 percent of industry shares are owned U.S. households do, there’s a good chance by company executives. The rest is owned by it invests in energy stocks. tens of millions of Americans, many of them middle class. When politicians talk about taxing “Big Oil” or taking their “record profits,” they should think If you’re wondering who owns “Big Oil, chances ” are good the answer is “you do.” If you have a about who would really be hurt. mutual fund account, and 55 million U.S. households do, America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 15
  • 18. Stock Repurchases as a Share of Net Income S&P Industrials Oil and Natural Gas Source: EIA, Performance Profiles of Major Energy Producers The oil and natural gas industry is very capital It is the responsibility of company officials to intensive and devotes the largest share of its build value for shareholders; one way to do this earnings to add new property, plant and is through stock repurchases. Earnings are equipment to its upstream and downstream also used for paying dividends which additionally operations. benefit shareholders. When companies repurchase stock, they are While the share of stock repurchases in the oil supporting the equity value of the company. and gas industry has increased in recent years, This in turn helps the owners of the companies— it is less than half of that for the S&P industrial retirees, future retirees and millions of Americans group. For the last 11 years, the oil and gas who have invested their earnings in a secure industry spent 21 percent of net income on future. stock repurchases while the rate for the S&P industrials was 52 percent. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 16
  • 19. Current income taxes paid by oil companies1 (billions of dollars) $81.5 $66.9 $44.8 $26.3 $24.0 $14.5 2001 2002 2003 2004 2005 2006 Source: EIA, Performance Profiles of Major Energy Producers, Table B12. According to publicly available data on the top Imposing additional taxes on the U.S. oil and 27 energy companies tracked by the EIA, the natural gas industry is contrary to the goal of total current income taxes paid worldwide by providing stable and cost-effective supplies of these companies nearly doubled between 2004 energy for American consumers and discourages and 2006, increasing from $44.8 billion to the tremendous capital investments needed to meet the nation’s growing energy needs. $81.5 billion. Repeal of tax provisions designed to encourage The average effective tax rate (current taxes) of investment in the United States will discourage the top 27 energy companies was 37.1 percent new domestic oil production and refinery in 2006. This indicates that taxes took up investments, threaten American jobs, and make 37.1 cents of every dollar of pre-tax income. In it less economic to produce domestic energy 2 comparison, according to the Tax Foundation, resources – thereby increasing our dependence the effective tax rate for the market as a whole on imported crude oil and gasoline. is 32.3 percent, or 4.8 percent less than the top energy companies. 1 Energy Information Administration, 2006 Performance Profiles of Major Energy Producers, December 2007. These 27 companies accounted for about 44 percent of the total U.S. crude and NGL production, 43 percent of natural gas production, 81 percent of U.S. refining capacity and 3 percent of U.S electricity. These companies include: Amerada Hess, Anadarko Petroleum, Apache, BP America, Burlington Resources, Chesapeake Energy, Chevron, CITGO Petroleum, ConocoPhillips Petroleum, Devon Energy, Dominion Resources, El Paso, EOG Resources, Equitable Resources, ExxonMobil, Kerr-McGee, Lyondell Chemical, Marathon Oil, Motiva Enterprises, Occidental Petroleum, Shell Oil, Sunoco, Tesoro Petroleum, Total Holdings USA, Valero Energy, The Williams Companies, XTO Energy 2 Tax Foundation, “Large Oil Industry Tax Payments Undercut Case for ‘Windfall Profits’ Tax,” January 2006. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 17
  • 20. Income Taxes as Share of Net Income Before Income Taxes Source: EIA, Performance Profiles of Major Energy Producers An important part of the revenue earned by the U.S. Energy Information Administration, U.S. oil and natural gas companies goes to their 2006 income taxes (both current and taxes. U.S. oil and natural gas companies deferred), as a share of net income before income pay considerably more in taxes than do taxes averaged 40.7 percent, compared to 22.1 manufacturing companies. According to percent for U.S. manufacturing companies. 1 Energy Information Administration, 2006 Performance Profiles of Major Energy Producers, December 2007. These 27 companies accounted for about 44 percent of the total U.S. crude and NGL production, 43 percent of natural gas production, 81 percent of U.S. refining capacity and 3 percent of U.S electricity. These companies include: Amerada Hess, Anadarko Petroleum, Apache, BP America, Burlington Resources, Chesapeake Energy, Chevron, CITGO Petroleum, ConocoPhillips Petroleum, Devon Energy, Dominion Resources, El Paso, EOG Resources, Equitable Resources, ExxonMobil, Kerr-McGee, Lyondell Chemical, Marathon Oil, Motiva Enterprises, Occidental Petroleum, Shell Oil, Sunoco, Tesoro Petroleum, Total Holdings USA, Valero Energy, The Williams Companies, XTO Energy America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 18
  • 21. Capital Spending Source: Oil and Gas Journal, April 2, 2007 To understand the oil and natural gas Because the industry must plan and operate industry one must recognize it as an industry under these long lead times, it is hypersensitive characterized by long lead times, massive capital to minimizing risk over the course of its requirements and returns realized only decades investments. It is crucial for an industry that later in the face of very real investment risks. must manage such huge risks that government Significant oil and gas discoveries that are provide an energy policy and tax framework that announced today often result from investments encourages investment, rather than discourage. begun by companies as far back as a decade or more ago. Planning and investment cannot To meet the continued, growing demand for oil be turned on and off like a spigot, without and natural gas, our industry has continued to entailing huge, potentially non-recoverable costs invest heavily. New investment in 2006 reached and delaying urgently needed projects. more than $176 billion—a 31 percent increase over the prior year. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 19
  • 22. Oil and Natural Gas New Investments New Investments Earnings Source: Ernst & Young Today’s earnings are reinvested for tomorrow’s New investments in 2006 reached more energy needs. The energy Americans consume than $174 billion (a 29 percent increase from today comes from industry investments made 2005), and between 1992 and 2006, the years or even decades ago. U.S. industry invested more than $1.25 trillion in a range of long-term energy initiatives compared to net income of $900 billion. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 20
  • 23. Number of refineries declines but capacity expands Source: EIA Investments in new capacity and improved Since 1985, refining capacity has increased by technologies have enabled U.S. refiners to 20 percent even though we have 57 fewer produce record amounts of fuels for consumers. refineries because it has been more efficient to However, for many years, the rate of return on expand at existing refineries. The infrastructure investment in U.S. refining lagged behind the to bring crude in and get products out is in place, returns for the S&P Industrial average. It is only the permitting process is quicker, and it is more in recent years that refiners have enjoyed higher cost-effective to add on to a refinery versus average earnings. Refiners need to continually building a new one. In addition, the elimination invest, and do so even when earnings are lower. of subsidies under the government price and allocation controls in 1981 led to closure of While no new refineries have been built many smaller, less efficient refineries through since 1976, the industry has added the the 1980s and 1990s. equivalent of one new average-sized refinery each year over the last decade. Capacity has increased while at the same time, industry invested $50 billion to make the cleanest burning fuels in the world. Much of the investments were in technologies and investments to meet stringent clean air standards set by the Clean Air Act of 1990. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 21
  • 24. EIA Projected Capacity Expansion Source: EIA Energy legislation enacted in 2005 made a refinery expansion plans will boost domestic positive contribution by permitting accelerated refining capacity by about one million barrels depreciation for certain U.S. refinery investments per day by 2012, the equivalent of five new placed in service before 2012; this helped to refineries. Moreover, a number of refinery make U.S. refinery investments more attractive modifications or expansions have been economically. According to the U.S. Energy announced to handle increased processing Information Administration, current domestic of heavier crude oils including synthetic oil derived from Canadian oil sands. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 22
  • 25. Environmental Expenditures since 1990 Source: API Statistics The U.S. oil and natural gas industry has invested In the year 2005 alone, $10.7 billion was spent more than $148 billion since 1990 toward implementing new technologies, creating cleaner improving the environmental performance of its fuels and funding ongoing environmental products, facilities and operations; $504 for every initiatives. An additional $1.7 billion went toward man, woman and child in the United States1. research and development, corporate environmental programs and spill remediation efforts. 1 Based on U.S. population estimate of 296.6 million by U.S. Census Bureau. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 23
  • 26. U.S. Crude Oil Resources (Undiscovered Technically Recoverable Federal Resources) 112 billion barrels is enough oil to power over 60 million cars for 60 years. Source: MMS, USGS, and API calculations Our nation’s energy security requires policies abundant volumes of oil and natural gas that do not disadvantage the investor-owned resources beneath federal lands and coastal oil companies, but rather enables them to be waters, but the bulk of these resources have competitive in the global marketplace. Our nation been placed off-limits to development. needs policies that promote greater supplies of oil and natural gas, not policies that hinder our For example, according to federal government industry’s ability to provide American consumers estimates, there is enough oil in these areas to the energy they demand and need. We have power more than 60 million cars. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 24
  • 27. U.S. Natural Gas Resources (Undiscovered Technically Recoverable Federal Resources) 656 trillion cubic feet is enough natural gas to heat 60 million homes for 160 years. Source: MMS, USGS, and API calculations And, there is enough natural gas to heat an shores, are off-limits to oil and natural gas additional 60 million homes for another 160 exploration. And, 75 percent of the most years. However, more than 85 percent of the prospective, technically available U.S. onshore coastal waters adjacent to the lower-48 states, areas are off-limits or accessible only with and which extend up to 200 miles from our significant restrictions. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 25
  • 28. Future U.S. Energy Demand per Dollar of GDP Source: EIA, AEO 2008 The greatest “new” energy source available to use produce additional energy—refiners are becoming is the reduced demand brought about by greater more efficient, reducing both energy use and energy efficiency and conservation. Significant emissions. API member companies have also progress has been made in the past and more pledged to improve aggregate energy efficiency by is expected in the future. We use about half as 10 percent at refineries between 2002 and 2012, much energy today for every dollar of Gross and we are making progress in meeting that goal. Domestic Product as we did back in 1980. In fact, in 2006 alone, U.S. refiners saved the energy equivalent of taking 528,000 cars off the Looking forward, our nation must take energy road. Additionally, all of API’s larger companies efficiency more seriously. Our industry is doing are active participants in EPA’s Natural Gas Star its part. Through such technologies as combined program. heat and power, also known as cogeneration—the re-use of excess heat from refinery processes to America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 26
  • 29. Future U.S. Energy Demand per Dollar of GDP Source: EIA, AEO 2008 Oil* excludes ethanol and other biofuels, they are counted in biomass and renewables The U.S. Energy Information Administration recently revised its forecast of future energy demand to include the impact of the “Energy Independence and Security Act of 2007” enacted in late December 2007. The results call for total primary energy consumption to grow by 19 percent between 2006 and 2030. Although the share of non-fossil fuels is growing rapidly, fossil fuels—oil, natural gas and coal—will continue to play the leading roles through 2030. Source: EIA, AEO 2008 America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 27
  • 30. Ethanol in Brazil Some argue that the U.S. should learn from Due to differences in scale between the US and Brazil’s success with its biofuels industry, and its Brazilian motor fuel markets as seen in the figure, ability to achieve energy independence. However, ethanol penetration in the US gasoline market on the lessons to be learned from Brazil are not a percentage basis can be expected to remain far exactly what some might think. Though ethanol below that in Brazil. production in Brazil has been a factor in its attainment of energy independence, the principal factor has been a significant ramp up in off-shore crude oil production. Likewise, the US could significantly improve its energy security by allowing access to oil and gas resources currently off limits. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 28
  • 31. U.S. Corn Use 2007-2008 (13 Billion Bushels) Source: Based on USDA/GCAU Data Ethanol production is now taking roughly The Federal Reserve Bank’s February 2008 25 percent of the US corn crop. This percentage Monetary Policy Report to Congress reports that: is expected to increase over the next several “Last year’s increase in the PCE price index for years due to a significant ramp-up in the food and beverages, at 4½ percent, was the renewable fuels mandate included in the largest in nearly two decades. Food prices 2007 Energy Bill enacted by Congress. accelerated in response to strong world demand and high demand for corn for the production of ethanol.” America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 29
  • 32. Technology—Our Industry’s Investments (2000-2005) Source: IER and CEE The U.S. oil and natural gas industry invested This investment represents almost 75 percent of an estimated $98 billion between 2000 and the total $135 billion spent by all of industry and 2005 in North American projects. They included the federal government combined on emerging emerging energy technologies, including energy technologies during this time period, renewables, frontier hydrocarbons, such as according to a May 2006 study by the Institute shale and oil sands, and end-use technologies, for Energy Research (IER) and the Center for such as fuel cells. Energy Economics (CEE). America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 30
  • 33. Leading Emerging Energy Investments by U.S. Firms (2000-2005) Source: IER and CEE The US oil and gas industry invested $11 billion in Total US oil and gas industry end use and the North American market over the 2000-2005 non-hydrocarbon investments are estimated to period for advanced end-use technologies, mostly total $12.2 billion over the 2000-2005 period, for efficiency improvements through combined or more than five times the $2.4 billion invested heat and power (cogeneration) and for advanced- by the Federal government. technology vehicles using fuel-cell technology. Significantly, this $11 billion investment in end- use technologies represents 35% of the estimated total amount ($31 billion) spent by U.S. companies and the Federal government in this area. Publicly announced non-hydrocarbon investment by the U.S. oil and gas industry is estimated at $1.2 billion, representing 8% of the total investment of approximately $15 billion. The industry’s top investment is in wind with expenditures also made in solar, geothermal, and landfill digester gas. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 31
  • 34. Policy Choices Needed to Ensure Future Energy Security What is needed today are policy choices to We should learn from the past – and take some increase, not decrease, energy production. positive steps to ensure we meet America’s Barriers to oil and natural gas production only energy needs in the decades ahead. As a contribute to volatile energy prices, slower society, we cannot remain passive to energy, economic growth, and lost American jobs. nor to the environment, nor to economic growth. An economic study undertaken for API last year Each will fall short of its fullest promise, absent by CRA International found that nearly 5 million constructive industry/government partnerships jobs could have been lost by the year 2030 had committed to providing our nation with a workable harmful energy proposals in Congress been energy security policy. enacted. Fortunately, most of these proposals did not survive. But they remain very real threats What we need is a public policy framework to this year in Congress—particularly punitive taxes. ensure future energy security for our nation. We need elected and appointed officials who Our nation’s past history is replete with short-term understand the energy challenges we face. energy “fixes” and searches for “silver bullets” We need a greater commitment to increased to solve our nation’s energy problems. Price energy efficiency. We need to diversify our energy controls, allocation schemes, limitations on resources, drawing upon the full range of energy natural gas, picking winners and losers among sources, including alternatives. We also need to fuels, and punitive taxes have all been tried by increase and diversify our oil and natural gas government – and none have worked to benefit supplies, both within this country and abroad. the consumer. And, we need to enhance energy technologies, remaining on the cutting edge of advanced technology. We need to get it right on energy. Too much is at stake for our nation to do otherwise. America’s Oil and Natural Gas Industry The Truth About Oil and Gasoline: An API Primer Page 32
  • 35. FOR MORE INFORMATION PLEASE VISIT www.energytomorrow.org www.api.org