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Ian WagreichConocoPhillips Chairman and CEO Ryan Lance Exclusive U.S. Chamber Interview

ConocoPhillips Chairman and CEO Ryan Lance has witnessed firsthand the evolution of his industry – from rough-necking to hard science.

He began his career in the trenches and now leads a team on the cutting edge of innovation – working to protect the environment and America’s energy independence. Technicians for the world giant in independent exploration and production can direct drill heads to pinpoint spots miles below the surface. The industry advances have brought results.

“Over the last two years alone, 40 percent of the U.S. GDP growth came from oil and gas,” Lance says, before adding: “And we did this through technology. Yes, oil is a high-tech business.”

Lance, during a visit to the U.S. Chamber of Commerce last week, sat down to give us an exclusive look at his tenure and how he sees the oil and gas industry today – and tomorrow.

Sean Hackbarth An American Electric Power coal-fired power plant in Winfield, West Virginia.An American Electric Power coal-fired power plant in Winfield, West Virginia. Photo credit: Luke Sharrett/Bloomberg.

EPA’s “War on Coal” is succeeding in driving coal-fired power plants into retirement.

The Energy Information Administration (EIA) reports, “Nearly 16 GW of generating capacity is expected to retire in 2015, 81% of which (12.9 gigawatts) is coal-fired generation.” At the same time, new electricity-generating capacity will come mostly from wind (9.8 GW), natural gas (6.3 GW), and solar (2.2 GW).

eia_electricity_addition_retirements_2015.png Energy Information Administration electricity generation additions and subtractions, 2015.Energy Information Administration electricity generation additions and subtractions, 2015.Source: Energy Information Administration.

EPA regulations are the villain, according to EIA:

The large number of coal-fired generator retirements is primarily because of the implementation of the Environmental Protection Agency's Mercury and Air Toxics Standards (MATS) this year, although some units have been granted extensions to operate through April 2016. MATS requires large coal- and oil-fired electric generators to meet stricter emissions standards by incorporating emissions control technologies in existing generating facilities. Some power plant operators have decided that retrofitting units to meet the new standards will be cost-prohibitive and are choosing to retire units instead.

And waiting in the wings are EPA’s carbon regulations, which will retire as much as 49 GW of coal-fired power by 2020, according to the agency.

Removing that much base load power will mean a less-reliable power grid, the North American Electricity Reliability Corporation—the independent organization actually responsible for ensuring grid reliability—warns:

The proposed timeline does not provide enough time to develop sufficient resources to ensure continued reliable operation of the electric grid by 2020. To attempt to do so would increase the use of controlled load shedding and potential for wide-scale, uncontrolled outages.

It will also increase electricity costs.

Coal has served America well as part of its energy mix. Using federal regulations to drive it out of use will harm power grid reliability and economic growth.

Sean Hackbarth A welder along the Gulf Coast Project pipeline, part of the Keystone XL project.A welder along the Gulf Coast Project pipeline, part of the Keystone XL project, in Atoka, Oklahoma. Photographer: Daniel Acker/Bloomberg.

Apparently getting four Pinocchios wasn’t enough to keep the president from spinning tales about the Keystone XL pipeline.  Last week in South Carolina, President Obama was asked about the project and answered:

Its proponents argue that it would be creating jobs in the United States. But the truth is it's Canadian oil that's then going to go to the world market. It will probably create about a couple thousand construction jobs for a year or two, but only create about 300 permanent jobs.

Glenn Kessler, the Washington Post’s Fact Checker, demolished this point about the oil being exported, writing:

A report released in February by IHS Energy, which consults for energy companies, concluded that “Canadian crude making its way to the USGC [Gulf Coast] will likely be refined there, and most of the refined products are likely to be consumed in the United States.” It added that “for Gulf refineries, heavy bitumen blends from the oil sands are an attractive substitute for declining offshore heavy crude supply from Latin America.” It concluded that 70 percent of the refined product would be consumed in the United States.

The State Department also noted that the oil won’t be exported:

Gulf Coast refiners have a significant competitive advantage in processing [Canadian crude]  compared to foreign refiners because the foreign refiners would have to incur additional transportation charges to have the crude oil delivered from the Gulf Coast to their location.

President Obama continued [emphasis mine]:

The reason that a lot of environmentalists are concerned about it is the way that you get the oil out in Canada is an extraordinarily dirty way of extracting oil.

“Extraordinarily dirty?” compared to what?

The Congressional Research Service found that on a greenhouse gas basis, Canadian crude is comparable to oil imported from Venezuela and Nigeria. Yet, I haven’t heard the president calling for limiting imports of oil from those two countries. [Rail cars moving Canadian crude and the U.S. shale boom have done that.] Also, these worries about Canadian oil didn’t stop President Obama from approving a pipeline transporting it in 2009.

Because the president is having trouble with them, here is a refresher of facts about the Keystone XL pipeline from his own State Department. The project will

Create 42,100 new jobs Generate $2 billion in earnings Add $3.4 billion U.S. GDP Produce more than $5.2 billion in property taxes for local communities Have minimal environmental impact and the lowest risk.

It’s best if the president stick to these. Better yet, he should take this issue off the table, end this needless delay, and approve the Keystone XL pipeline.

Tell President Obama: It's Time to Build the Keystone XL Pipeline

Sean Hackbarth An oil terminal in Hardisty, Alberta.An oil terminal in Hardisty, Alberta. Photo credit: Brett Gundlock/Bloomberg.

Something to think about after the Senate failed to override President Obama's Keystone XL veto is that not long ago, pipelines weren’t tied up in regulatory limbo and the focus of anti-energy advocates.

Ken Cohen, Exxon Mobile’s vice president of public and government affairs, looks at a pipeline approved by the Obama administration that does the same thing Keystone XL will do--move Canadian oil sands crude [emphasis mine]:

Consider that the original Keystone pipeline took 693 days to approve. The current Keystone XL application has languished for 2,356 days and counting.

Then there’s the Alberta Clipper pipeline, another cross-border pipeline whose comparison to Keystone XL should leave many people scratching their heads.

That pipeline took 829 days to approve.  That’s about one-third as long as the Keystone XL review.

The Alberta Clipper pipeline moves oil from Alberta to Wisconsin.

alberta_clipper_map.jpg Alberta Clipper pipeline map.Alberta Clipper pipeline map.Alberta Clipper pipeline map. Image credit: Enbridge.

Cohen quotes the State Department’s 2009 announcement of the Alberta Clipper’s approval [emphasis his]:

The addition of crude oil pipeline capacity between Canada and the United States will advance a number of strategic interests of the United States. .… Canada is a stable and reliable ally and trading partner of the United States, with which we have free trade agreements which augment the security of this energy supply.

Approval of the permit sends a positive economic signal, in a difficult economic period, about the future reliability and availability of a portion of United States’ energy imports, and in the immediate term, this shovel-ready project will provide construction jobs for workers in the United States.

“The same arguments that prevailed for Alberta Clipper in 2009 apply even more to Keystone XL today,” Cohen writes.

[In 2013, I broke down in more detail how the State Department’s rationale squared with arguments for the Keystone XL pipeline.]

Remember, this is President Obama’s State Department.

Its attitude toward Keystone XL is a mirror image of what it was toward the Alberta Clipper even though they have similar benefits.

Instead of appreciating how Canadian oil sands crude improves U.S. energy security, the president gets called out for misleading the public that oil through the Keystone XL pipeline will be exported from the U.S.

And instead of applauding the jobs what will be created by the pipeline, the president considers some construction jobs better than others.

What’s the difference between then and now? Politics.

Organizations are cynically using the Keystone XL pipeline as a symbol to gin up anger, expand membership rolls, and raise money to push a “not here or anywhere” anti-energy agenda.

Not that this opposition is stopping oil sands production. Record volumes of oil sands crude are being refined in the U.S. while President Obama feeds the hopes of activists that he’ll reject a project that his State Department says will have few negative effects on the environment.

Going back to the Senate's veto override attempt, Karen Harbert, President and CEO of the Institute for 21st Century Energy, released a statement:

In an era when Congress can't agree on much, the Keystone XL pipeline has stood out because it has such strong, bipartisan support.  Unfortunately, pipeline supporters were a few votes short of the super-majority needed to overturn President Obama's veto, but the President should not ignore this strong level of support when he makes his final decision on the pipeline.

Sean Hackbarth Ryan Lance, Chairman and CEO, ConocoPhillips.Ryan Lance, Chairman and CEO, ConocoPhillips. Photo credit: Ian Wagreich / © U.S. Chamber of Commerce.

ConocoPhillips’ CEO told an audience at the U.S. Chamber, American oil is “not a product we want to land lock” in the U.S.

Ryan Lance said that maintaining the domestic oil boom will require ending the 40-year-old ban on oil exports.

Mark Perry at the American Enterprise Institute shows us that hydraulic fracturing has boosted American oil production to a 42 year high! We’ve got a good thing going.

aei_oilproduction_012015_800px.jpg U.S. crude oil productionU.S. crude oil production

However, Lance said there’s not enough domestic refining capacity to process the lighter oil produced from shale formations. “Light oil production already exceeds refining capacity seasonally – during maintenance turnarounds. That surplus could become year-round by 2017,” he warned. As a result, domestic oil prices have been pushed down and new investment in domestic exploration has slowed, he argues.

At the same time, most of the country’s refining capacity is along the Gulf Coast and is set up to process heavier oil, like that from Canada’s oil sands. It is possible to reconfigure these refineries to more efficiently process lighter domestic oil, but it would be expensive. Lance estimates that because of investments already underway to meet tougher gasoline specifications and the difficulty in getting air permits, retrofitting would cost an average of $400 million per refinery. That’s cost-prohibitive.

A fix to this oil-refinery mismatch is to listen to David Ricardo and embrace comparative advantage and trade. Import heavier oil and export some domestic oil.

This does two things:

It takes advantage of domestic refining capabilities. It expands the market for domestic oil producers and encourages continued development.

The economic benefits from lifting the oil export ban would be significant, Lance said:

On the world market, light oil sells for more than heavy oil. So the U.S. would gain by exporting our surplus light oil, and then importing the cheaper heavy oil that suits our refinery system.

The Brookings Institution predicts U.S. production would rise by up to 3 million barrels a day. Jobs would be created, economic growth would be generated, and household income would grow.

IHS says that our industry’s capital investments would rise by $750 billion thru 2030.

That’s a lot of economic stimulus.

The annual GDP would gain $135 billion at the peak. We’d add a million jobs, also at the peak. The trade balance would improve by $67 billion annually, and government would gain $1.3 trillion in higher tax and royalty revenue thru 2030.

And because fuel prices are determined by world oil prices, consumers would also gain. “IHS estimates savings on gasoline of $18 billion annually, and Brookings estimates 9-to-12 cents per gallon,” Lance said.

Exporting domestic petroleum isn't an alien idea; it’s already happening in the form of petroleum products. Oddly, gasoline and diesel fuel “can be exported legally, but not the crude oil from which they are made,” Lance said, “We are the world’s 2nd-leading product exporter. Products and services together generated $2.3 trillion from exports in 2013.”

While the economic case is clear, Lance said the public and Congress need to be convinced:

We have to change the mind-set of scarcity. It’s really a hold-over from the last century. Today’s energy renaissance is real. It’s here for the long term. It can continue driving economic growth. And we can help ensure that by recognizing the new realities – and allowing oil exports.

House Energy and Commerce Committee, Chairman Fred Upton said, his committee will undertake a "thorough review and will consider all perspectives" before considering lifting the ban.

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