Oil company Hess CEO John Hess took policymakers to task for failing to formulate a long-term national energy policy in an address to the IHS Herold Pacesetters Energy Conference.
“The US is in desperate need of an energy policy,” Hess said. “It’s fundamental to our economic growth, our environmental sustainability, and obviously our national security,” he said.
But he acknowledged that recent accidents, such as the rig explosion and massive oil spill at the Macondo well in the deepwater Gulf of Mexico, have eroded faith in the safety of the oil and gas industry.
“The industry itself needs to regain the public trust,” said Hess.
“Those companies that have those safety problems need to be brought to task and be held accountable for them,” Hess said. “In some cases, increasing regulatory oversight is appropriate,” he said.
Read more on the conference: Drilling Advances Trigger Tight Oil Renaissance.
The Bigger Picture
Hess warned of an impending energy crisis, “probably triggered by oil,” as global crude oil production fails to keep pace with demand growth driven by developing countries. When oil prices exceeded $140 per barrel in 2008, this “was not an aberration, it was a warning,” he said.
Speakers at the conference noted that oversupply and rapidly falling prices is likely to cause consolidation in the natural gas industry. Read more: Low Prices Spark Warnings Of Industry Consolidation.
And he blamed political leaders’ short-term thinking for a failure to take long-term national interests into account.
“If political leadership is going to do what’s right, they’re probably going to have to do some things that are going to make people sacrifice in the short term for a long-term benefit,” he said. “We can no longer pursue narrow, short-term political agendas.”
Hess called for a realistic appraisal of global energy needs and prospects for various sources of supply, stressing that oil will continue to be a critical component of energy supply. And he said a US energy policy for oil should be focused on “moderating demand and increasing supply.”
Hydrocarbons For The Future
On the supply side, Hess said policies should encourage drilling, both onshore and offshore. His proposed demand solutions included raising vehicle mileage performance standards to 50 miles per gallon, which he said could save over 3 million barrels per day of oil equivalent (boe), and $100 billion each year at $100/barrel oil.
US energy policy for natural gas should push for using natural gas as a baseload feedstock in power generation, he said, capitalizing on its domestic abundance, low cost, and reduced emissions relative to coal. He said that while a 1,000 megawatt (MW) natural gas-fired plant takes 2 years to build and costs $1 billion, a 1,000 MW coal-fired plant would take 3 years and cost $3 billion.
Hess’ policy prescription for coal is “reducing its use until we can find some research breakthrough that makes clean coal commercially viable.” While carbon capture and storage (CCS) is “technically feasible,” it remains “economically prohibitive,” he said.
And he stressed the importance of a sober assessment of prospects for renewables, which have yet to overcome obstacles arising from costs, technological uncertainty, and scalability.
“Renewable energy is needed and should be encouraged to meet future energy demand and reduce the carbon footprint,” said Hess. But as global energy demand continues to grow, hydrocarbons will continue to comprise the better part of energy supply.
“Renewable energy does not have the scale, timeframe, or economics to materially change this outcome,” he said.
Hess indicated support for investing in research and development of alternative energy sources, but warned that prospects for renewables to supply a substantial share of energy demand are some ways off.
“If one day there’s a technological breakthrough, fantastic. But let’s not bank on it,” he said.
Photo Caption: (Left – Right) John Hess, his wife Susan Hess, musician Patty Smyth, her husband and former professional tennis player John McEnroe, comedian Jimmy Fallon and Caryn Zucker attend the American Museum of Natural History’s 2010 Museum Gala at the American Museum of Natural History on November 18, 2010 in New York City.