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 Alan Kelly was the former Corporate Planning Manager at ExxonMobil, and Chairman of the National Petroleum Council (NPC) Study Coordinating Subcommittee. He has over a decade of experience in the oil and gas industry and recently helped oversee publication of the NPC's 400+ page assessment on the future of U.S. oil and natural gas supply. He joins us this month to discuss the history of the NPC, climate change and several hard truths the petroluem industry might be facing in coming years.
e-FFICIENCY NEWS: Would you start off by telling us a little about the history and function of the National Petroleum Council (NPC)?
Kelly: The National Petroleum Council (NPC) has an interesting history, and plays an important function. During World War II, under President Franklin Roosevelt, the federal government and the Petroleum Industry War Council worked closely together to mobilize the oil supplies that fueled the Allied victory. The NPC grew out of this cooperation, and was formally established in 1946 as a federally-chartered and privately-funded advisory committee by the Secretary of the Interior at the request of President Truman. When the U.S. Department of Energy was established in 1977, the NPC’s functions were transferred to it.
From the beginning, the sole function of the NPC has been to advise, inform, and make recommendations to the Secretary of Energy and the Executive Branch with respect to any matter relating to oil and natural gas, or to the oil and gas industries submitted to it by the Secretary. We do not engage in advocacy or in any of the usual trade association activities.
The Council membership of approximately 175 persons is selected and appointed by the Secretary of Energy. Individual members serve without compensation as representatives of their industry or associated interests as a whole, not as representatives of their particular companies or affiliations.
In selecting the membership, special attention is given by the Secretary to assure a well-balanced representation from all segments of the oil and gas industries, all sections of the country, and from large and small companies. The Council also has members with interests outside of oil or gas operations, including representatives from academic, financial, research, Native American, and public interest organizations and institutions.
The advice of the NPC is transmitted to the Secretary in the form of reports approved by the Council and is rendered to the government as a public service. The cost of providing this service is borne by voluntary contributions from the Council members. The NPC conducts studies only in response to specific requests originating from the Secretary of Energy.
At the NPC today, we are mindful of the organization’s rich history, and take seriously the responsibility of fulfilling our unique function.
e-FFICIENCY NEWS: The NPC recently released a report detailing its assessment on the future of oil and natural gas in the United States. Energy efficiency plays a key role in the NPC’s recommendations to the Department of Energy. Did the process of developing the report influence the opinions of NPC members with respect to energy efficiency or climate change?
Kelly:This is a question that can only be fully answered by each individual member of the NPC. That said, I believe that all of us should come into a study with an open mind to the fact that we might learn something from the study process and the other study participants.
In all good and intellectually honest studies, opinions evolve and advance based on the collection and analysis of data, exposure to varied ideas, and discussion and debate among knowledgeable participants. The NPC’s Global Oil and Gas study was no exception.
I believe that all participants learned about a number of issues during the course of the study. Just as opinions in the petroleum industry may have been affected on energy efficiency and carbon constraints, I would hope that the same is true on the part of non-industry groups as to the need to expand and diversify production from clean coal, nuclear, biomass, other renewables, and unconventional oil and gas; to moderate the decline of conventional domestic oil and gas production; and to increase access for development of new resources.
Recognize, however, that the above steps are only part of an integrated and interrelated set of strategies. In our “Hard Truths” report, the NPC proposes five core strategies to assist markets in meeting the energy challenges to 2030 and beyond: moderate demand by increasing energy efficiency; expand and diversify U.S. energy supply; strengthen global and U.S. energy security; reinforce capabilities to meet new challenges; and address carbon constraints.
All five strategies are essential—there is no single, easy solution to the multiple challenges we face. However, we are confident that the prompt adoption of these strategies, along with a sustained commitment to implementation, will promote U.S. competitiveness by balancing economic, security, and environmental goals.
e-FFICIENCY NEWS: The report is the product of more than a year's work by analysts and executives from the nation's leading oil and gas companies, yet the NPC also elected to include the input of many entities and players from leading energy, environmental, and consumer organizations. Would you say this approach was a departure from past procedures and, if so, why did the NPC decide to change its tactics?
Kelly:Not really. The inclusion of participants from energy, environmental, and consumer organizations is not new for the NPC. The Council has a long tradition of including a diverse group of participants in its work. In the 1970s, the Council membership was broadened to include representatives of environmental, consumer, and other interests and industries.
This diversity has been reflected in the make-up of the NPC study groups. The Council believes that an inclusive approach better informs and enhances the ultimate advice that it provides to the Secretary of Energy and other government policymakers.
Clearly, the NPC’s Global Oil and Gas study employed an inclusive approach with over 350 participants from diverse backgrounds and organizations with almost two-thirds from outside of the oil and gas industries. In addition, the study conducted outreach activities with numerous individuals and organizations with the goal of informing and soliciting input from a broad range of interested parties.
I believe that our report, like NPC reports of the past, is a comprehensive and compelling one due to the broad input and participation that meaningfully contributed to its development. And what pleases me most is that we were able to find common ground among such a diverse group of organizations - such is the general interest in finding solutions to a number of longer term challenges.
e-FFICIENCY NEWS: What were some of the outcomes of the report and have you been surprised by the types of reactions from government agencies, the media and the oil and gas industry?
Kelly:The NPC found that total global demand for energy is projected to grow by 50 to 60 percent by 2030, driven by increasing population and the pursuit of improving living standards. At the same time, there are accumulating risks to the supply of reliable, affordable energy to meet this growth, including political hurdles, infrastructure requirements, and availability of a trained work force. We will need all economic, environmentally-responsible energy sources to assure adequate, reliable supply.
If any reaction has surprised or rather disappointed me it is the tendency of readers and observers wishing to focus on single issues, such as “peak oil,” or on unrealistic solutions, such as "energy independence," which should not be confused with strengthening energy security. The complexity of today's integrated, global energy markets and the urgency surrounding today's energy issues demanded a comprehensive study with an integrated set of recommendations. Our nation, and the world, need to address energy issues in a holistic manner and to avoid reverting to a “stovepipe” approach of individual or narrow issues.
On the other hand, I have been astonished at the worldwide interest in our report. At this point in time, over 850,000 people have visited the NPC website and downloaded the full report or extracts of the report. Amazing!
e-FFICIENCY NEWS: The NPC has been meeting with various groups to promote the report. What do you foresee happening in the next year or the next five years, both with respect to the specific NPC recommendations and the U.S. energy situation?
Kelly:I believe that the NPC “Hard Truths” report provides a clear roadmap for charting our nation’s energy future and will help to inform the energy debate. There is no single, easy solution to the global challenges ahead. Given the massive scale of the global energy system and the long lead-times necessary to make material changes, actions must be initiated now and sustained over the long term. All strategies delineated in the report are essential to ensuring that our economic, security, and environmental goals are met. Whether legislators and policymakers are willing to adopt this balanced approach and to stay with it remains to be seen. Motivating government leaders to take a necessary, long-term view is a significant challenge. My fear is that government leaders will “cherry pick” the actions that are easy or are their favorites and will ignore those that are difficult but necessary. The public interest demands that a report card should be kept and our leaders be held accountable. Actions are necessary now on all fronts - the clock is ticking.
On the other hand, I am heartened by the immense interest in the study, its report, and the crucial topic of future energy needs and supply. The Secretary of Energy and DOE have been very supportive. With the more than a half million downloads of the draft report from the Council’s public website (www.npc.org), the widespread coverage by the press and other media, and the numerous requests for presentations, thought leaders and the public at large are clearly engaged and want to understand our energy challenges and solutions.
e-FFICIENCY NEWS: Climate change is fast becoming the issue of the decade - if not the century. What strategies do the NPC see for addressing climate change and limiting the growth of CO2 emissions while allowing for economic growth?
Kelly:To be clear, the Council does not have any particular expertise or insights on climate science, so we addressed issues relating to carbon constraints, not climate change.
On the topic of carbon constraints, the Council concluded the hard truth that policies aimed at curbing carbon dioxide (CO2) emissions will alter the energy mix, increase energy-related costs, and require reductions in demand growth. Further, the Council recommended that the United States must develop the legal and regulatory framework to enable carbon capture and sequestration (CCS). In addition, as policymakers consider options to reduce carbon dioxide emissions, we need to provide an effective global framework for carbon management, including establishment of a transparent, predictable, economy-wide cost for carbon dioxide emissions.
There is growing concern that the global climate is warming, and that CO2 emissions from human activity play a role. The NPC did not examine the science of climate change. But recognizing that an increasing number of initiatives to reduce these emissions are emerging, the NPC considered the potential effect of CO2 emissions constraints on energy and opportunities for technology application. Limits on CO2 emissions could restrict fossil fuel use, which currently provides more than 80 percent of the world’s energy. Therefore, it is increasingly important to plan for potential constraints on CO2 emissions as part of any overall energy strategy.
By its nature, climate change is global. CO2 emissions from burning fossil fuels contribute to the overall flux of carbon between the atmosphere, the land, and the oceans. By mixing in the atmosphere, CO2 emitted anywhere in the world is distributed around the globe.
The United States was the world’s largest CO2 emitter from energy use as of 2005, both in total emissions and on a per-capita basis, but most projected growth of CO2 emissions is in the developing world. Significantly reducing CO2 emissions would require global, broad-based actions over decades, with major and sustained investment.
The Council recommended steps to enable carbon capture and sequestration. Coal combustion is the largest source of CO2 emissions from energy use, and coal is projected to remain a major fuel for electricity generation in most forecasts. The resource base for coal is much larger than that for oil and natural gas, and the United States has the world’s largest coal resource by some estimates. One opportunity for reducing CO2 emissions is carbon capture and sequestration, which traps CO2 and stores it underground. Extensive, commercial scale deployment of this technology could allow continued coal use in a carbon constrained future. Additionally, some unconventional oil production requires substantial energy, increasing CO2 emissions per unit of delivered energy, and future development could be influenced by the availability of CCS. An initial suite of technologies for large-scale CCS implementation already exists within the oil and natural gas industry, although such technologies have yet to be demonstrated in combination and at commercial scale. More importantly, a legal and regulatory framework for long-term CO2 storage is still lacking.
Scale is also a major consideration for CCS. In the United States, if all the CO2 from today’s coal-fired electricity generation were collected and compressed, it would total 50 million barrels per day. This amounts to 2½ times the volume of oil handled daily in the United States. To accommodate such volumes, potential storage sites need to be mapped and assessed.
The Council also recommended a comprehensive approach to carbon management, which would include measures to: boost energy efficiency and reduce demand; increase use of power that is not carbon-based such as nuclear, wind, solar, tidal, ocean-thermal, and geo-thermal energy; shift to lower carbon fuels, including renewables; and deploy CCS.
Putting a cost on carbon emissions across all economic sectors, whether through a carbon tax or a carbon cap-and-trade mechanism, would allow the marketplace to find the lowest cost combination of steps to achieve carbon reduction. Any cost should be imposed in a predictable manner over the long term, since regulatory uncertainty weakens the investment climate and has the potential to disrupt economic activity. Any cost imposed should also consider the actions of other countries and the resulting effect on U.S. competitiveness.
Like other challenges we face, the issue of climate change is a serious one – and one the NPC took seriously in its report.
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