Mulva touts natural gas as sustainable, abundant

Natural gas is the key to fueling global energy demands and fostering economic growth, outgoing ConocoPhillips CEO Jim Mulva told the World Petroleum Congress this morning.

But in a speech before the 20th annual gathering in Doha, Qatar, Mulva also warned that government policies favoring renewable energy or hindering natural gas extraction could stifle production and use of the fossil fuel.

“Nature has given mankind the gift of natural gas,” Mulva said, according to prepared remarks. “Our hope now is: Please don’t let government mess it up.”

Mulva’s message today echoes the themes of a nationwide advertising campaign ConocoPhillips launched in September to convince policymakers and consumers that expanded natural gas production can provide low-cost energy and high-paying jobs. Companies such as Exxon Mobil and industry trade groups, including America’s Natural Gas Alliance, have launched similar initiatives, as U.S. energy producers with big natural gas portfolios struggle to deal with a relatively low price for the hydrocarbon.

Mulva used his presentation in Qatar to urge government regulators to foster development of natural gas, which he described as a sustainable, environmentally friendly option compared to alternatives such as coal.

“Our ability to deliver benefits offered by natural gas depends greatly on government policy,” Mulva said. “There are countries such as Qatar where government is supportive of development, but there are others in which government does little to help — or even discourages the use of gas.”

Mulva blamed policies to exclusively promote renewable energy and the “hostility” of some policymakers toward fossil fuels amid concerns about global warming.

“There are legitimate reasons to seek reductions in greenhouse gas concentrations in the atmosphere,” Mulva said. “But we must also recognize reality. Using natural gas instead of more carbon-intensive fuels is the fastest, lowest-cost way to reduce emissions.”

The World Petroleum Congress began Sunday in Qatar, marking the first time the event has been held in the Middle East, even as turmoil in the region threatens further disruptions of oil supplies. It continues through Dec. 8.

Below, read the full text of Mulva’s speech, as prepared for delivery.

Deputy Minister Dupont, ladies and gentlemen, I appreciate the opportunity to serve on this distinguished panel. I always enjoy visiting Qatar. ConocoPhillips holds substantial interests in the Qatargas 3 LNG and Q-Chem ventures. So I’ve been here many times.

It has been exciting to see Qatar become one of the world’s most vital energy-producing countries. And production of natural gas and LNG has truly benefitted its people. They’ve realized economic growth, job creation and sustainable industrial and social development.

So in pondering our moderator’s points – the need for energy security, economic opportunity and sustainability – natural gas immediately comes to mind. It addresses all three. Whether it comes from LNG in Qatar, shale in the U.S., or even hydrates from the ocean, gas in all its forms is needed to supply world energy. For both the short and long terms.

Let’s start with energy security. You probably know of the North American shale gas revolution. A mature industry was reborn through technology. By using horizontal drilling and hydraulic fracturing, production is now possible from source rock. As a result, U.S. gas reserves are up 65% since the mid-1990s, and still rising. We now estimate more than a 100-year supply in North America.

Well, technology has no borders. Dozens of countries are now finding potential for shale gas. As well as for unconventional gas from tight sands and coal seams.

Consider the implications. The world uses about 110 trillion cubic feet of gas a year. Recoverable conventional resources of 14,000 trillion cubic feet represent at least a 120- year supply. Adding the recoverable unconventional gas doubles that, to nearly 250 years. Even this could rise with new technology.

Further, thanks to growing LNG transportation, neither supplies nor users remain stranded any longer. Natural gas found almost anywhere can find markets. And consuming countries can gain access to the gas they need.

Beyond that, there are massive methane hydrate resources under the ocean floor and in the Arctic. This is gas trapped in a matrix that resembles ice. Hydrates have never been produced commercially. But they could potentially add more centuries of supply. Even without them, shale gas and other unconventional resources are transforming the energy market.

So natural gas can certainly ease today’s energy security concerns. And hydrates may one day contribute as well.

Next is economic opportunity. Qatar’s experience demonstrates the economic benefits of encouraging natural gas production. It has helped give Qatar the world’s highest gross domestic product per capita. As well a 19.4% economic growth rate last year – the world’s highest.

We’re also seeing the benefits of natural gas production growth in the United States, Canada and Australia. Last year, U.S. production was 22.6 trillion cubic feet, or one-fifth of the world’s total. Its wellhead value was nearly 100 billion U.S. dollars – certainly a substantial economic contribution. Had this production occurred in Europe or Asia, its value would have been even higher.

But this is only part of the total benefit. It is estimated that natural gas helps sustain 2.8 million jobs in the United States. These include more than 600,000 direct jobs in field operations, drilling, distribution, pipeline construction, equipment manufacturing, site preparation and others. Next come 700,000 indirect jobs. These are people who work for companies that supply products to service industries. And finally, 1.5 million more jobs are induced, when the direct and indirect employees buy goods and services. Add it up, and the annual value-added benefit of these jobs approaches 390 billion U.S. dollars.

Those familiar with the U.S. might say these benefits stem from unique factors. Such as the long U.S. producing history, legacy fields, and established producing and transportation infrastructures. True, these are advantages.

But the shale gas revolution is creating new jobs, by the thousands, from new resources. For example, we’ve seen one shale trend create 140,000 jobs in a few years. Another added 100,000 jobs in a decade. And there are drilling booms in a number of areas.

The shale revolution is now spreading to Western Canada, adding to job creation and economic opportunity there. Meanwhile, in Australia, coal seam gas is creating thousands of jobs in producing fields and LNG projects.

So natural gas can contribute enormously to economic opportunity. Given the geological resources and favorable conditions, our industry can create thousands of jobs – quickly.

Further, the availability of abundant and reasonably priced energy and feedstock drives job creation in other industries. Such as petrochemicals. Again, Qatar is a good example.

Now, let’s consider sustainability. Here too, natural gas represents an excellent solution. It offers real and attainable environmental and climate benefits. For example, natural gas produces little of the nitrogen, sulfur compounds and particulates that cause acid rain and smog. So it’s particularly attractive in areas suffering from air pollution.

When used for power generation, gas produces only half the carbon dioxide of coal – a vital climate benefit. Its production requires only 1/20th the land footprint of equivalent wind energy. Electric generation plants fueled by gas use 60% less water than coal plants of equal capacity. And they do it without producing soot or fly ash.

Also, natural gas can facilitate the use of renewable energy, by providing backup power. Gas-fired plants are very flexible. They can ramp up quickly when the wind doesn’t blow, or the sun doesn’t shine. And if electric vehicles really catch on in the future, we could recharge them with power from gas-fired generators – cleanly and efficiently.

Further, there is a tantalizing possible breakthrough ahead. ConocoPhillips has patented a theoretical approach to producing hydrates. It would inject carbon dioxide into the target formation to free the methane, while permanently storing carbon. This addresses both energy and climate concerns. We are in the early stages of testing. It will be a while before we know if it works.

So sustainability is the third solution provided by natural gas, after energy security and economic opportunity.

However, in attaining these solutions, the role of government must always be considered. That role can vary, from support and encouragement, to frustration.

During the 1980s, after the first great energy boom ended, times were tough. There was a saying back then. “Please give us just one more energy boom, and we promise not to mess it up.” Today, we realize that nature has given mankind the gift of natural gas. But our hope now is, “Please don’t let government mess it up.”

Our ability to deliver the benefits offered by natural gas depends greatly on government policy. There are countries such as Qatar where government is supportive of development. But there are others in which government does little to help, or even discourages the use of gas. There are two core reasons.

The first is the mistaken belief that world gas resources cannot meet long-term needs.

Those holding this belief assert that renewable energy is therefore the only viable path forward. As I’ve said, the world holds centuries of potential gas supply. Enough for multiple generations. Also, with a world population headed toward 10 billion people, clearly all energy sources, including natural gas, will be needed.

The second reason that some governments discourage the use of gas is their hostility toward fossil fuels. This is based on concern over global climate change. There are legitimate reasons to seek reductions in greenhouse gas concentrations in the atmosphere. But we must also recognize reality. Using natural gas instead of more carbon-intensive fuels is the fastest, lowest-cost way to reduce emissions. In fact, switching from coal to gas brings greater reductions than you can achieve by switching from gas to renewable sources.

But by mandating the use of renewable energy, governments cause unintended consequences. When utilities are forced to incorporate renewable power, in many cases they must shut down other sources. For technical and economic reasons, they don’t shut down coal-fired power. Instead, they shut down gas-fired plants. As a result, renewable energy mandates tend to back out natural gas – a clean fuel – rather than coal. So the desired reductions in emissions are not materializing in the manner that governments intend.

Keep in mind, too, a potential decline in nuclear power use. After the Fukushima disaster, about 3/4ths of Japan’s nuclear power-generation capacity was down. Fortunately, LNG assumed much of the load. This proves the capability and flexibility of the world LNG market. We see the same potential for Europe, if some countries scale back their nuclear power use.

Obviously, we oppose governmental mandates that pick technology winners by forcing the use of renewable energy. These sources are typically more expensive than natural gas, so they drive up consumer costs. They also retard demand for gas – itself a clean energy source.

Our industry faces some daunting challenges. First is dealing with opposition to fossil fuels that is all too common in the developed countries. We hear repeated calls to replace nuclear and coal, to alleviate safety and climate-change concerns. But we also hear assertions that any fossil fuel is unacceptable. This sends mixed signals on security of demand – both to gas producing countries such as Qatar, and to companies seeking to invest for the long term. So we must continually point out the benefits of natural gas.

Our second challenge is preserving our ability to make the financial investments required to supply the energy society needs. Too many governments are deep in debt. And they regard our industry as “deep pockets” to target for new taxes. This despite the fact that our industry’s effective global tax rates already far exceed those of other industries.

And third, we face difficulties in gaining access to resources. Sometimes, we face opposition best characterized as “NIMBY,” or “not in my back yard.” Also, resource-rich countries face the challenge of deciding the best way to develop their resources. We believe that Qatar has chosen an ideal path. They invite in foreign companies, and benefit from the resulting financial investments and sharing of technology. Not all countries follow this approach.

To overcome these challenges, we have work to do. We’re going to have to take greater responsibility for communicating with key stakeholders. And for ensuring that the industry operates with the highest standards.

We have a great success story to tell with natural gas – a clean fuel with abundant long- term supply. Further, we don’t need new technological miracles. The miracles have already occurred – horizontal drilling, hydraulic fracturing, liquefaction and regasification, global LNG transportation, combined-cycle power plants, shale gas, coal seam gas and many others.

Thanks to LNG, we have a rapidly developing global infrastructure, with redundancy of suppliers and markets. This improves demand security for producers, and supply security for consumers. Given time and further development, it also offers a path to shared economic prosperity, political stability and peace.

For all these reasons, ConocoPhillips is conducting a public information campaign on natural gas. Some of our peer companies are doing the same. Regardless of what countries we call home, we must all engage in a global effort to earn the trust of the public and government.

Natural gas offers solutions to energy security, economic opportunity and sustainability for the entire world. It’s our responsibility to not only supply natural gas, but serve as its advocate.

Thank you. Jim Mulva, CEO of ConocoPhillips, (talking with reporters in Houston)

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