2017 ENERGY IS EVERYTHING STATE OF AMERICAN ENERGY AMERICAN PETROLEUM INSTITUTE INTRODUCTION MESSAGE FROM JACK GERARD The 2017 State of American Energy report through lower home energy costs2 as well API PRESIDENT AND CEO looks at today’s energy reality: how energy as lower costs of goods and services as intersects with our daily lives, and how we a result of the abundant supply of North can reach our nation’s bright energy future American natural gas. None of this happened if we make the right policy choices today. by chance. America’s ability to become a This year’s report coincides with the global energy leader in less than a decade is beginning of a new chapter in American the result of market-driven innovations and history, the start of a new administration private sector entrepreneurial forces. These and Congress. Last year, polls consistently gains and tangible benefits to consumers said voters from both parties wanted our underscore what’s at stake when it comes to nation’s leaders to address economic growth our nation’s energy future. and accelerate job creation. And all voters want an energy future that respects and This year’s State of American Energy report protects our air, land and water, and that provides a close look at the state of modern provides reliable, affordable energy for American energy: the benefits of the our daily lives. The right energy policies are American energy revolution to consumers critical to accomplishing all of these goals. through lower costs and to the environment, thanks to abundant, cleaner-burning, The very ubiquity of oil and natural gas as domestically produced natural gas; and the a source of electricity, fuel and manufacturing need to improve and expand our nation’s feedstock for everyday products makes energy infrastructure and maintain our place our nation’s energy discussion more than a as a global energy leader. collection of abstract policy positions or partisan talking points. Ultimately, energy The report examines how, in ways large policy is about the direction, quality and and small, energy touches every part of our prosperity of our lives and the economic daily lives. And it provides a broad vision for opportunity of future generations. President what our nation’s energy future should be Trump and the incoming Congress will in order to take full advantage of our energy inherit a country with a growing population resources, maintain our position as the and economy at a time of historic domestic world’s leading producer of oil and natural energy production. All while, according to gas, and continue to provide American the Energy Information Administration (EIA), consumers with abundant, affordable and greenhouse gas emissions from electricity reliable energy. Energy is fundamental to our society. generation are at their lowest point in 25 years Our ability to responsibly produce, safely thanks to increased use of North American The 2017 State of American Energy report distribute, store and efficiently consume natural gas. makes clear that the policies our elected the energy we need to maintain our representatives choose and the actions standard of living while lessening the For the American consumer, the nation’s they take today will determine whether this impact on the environment is crucial energy renaissance has meant lower energy nation’s 21st century energy renaissance to our shared goal of a better future costs, an average of more than $550 saved endures and delivers the energy, economic for the next generation. on gasoline costs, according to the American opportunities and national security through Automobile Association (AAA).1 And American global energy leadership that Americans families saved, on average, $1,337 in 2015 today and in the future deserve. 3 ENERGY TODAY TABLE OF ENERGY IS ALL CONTENTS AROUND US. INTRODUCTION Message from Jack Gerard...... 3 ENERGY IS ... ENERGY TODAY Energy Revolution...... 8 Lowered Consumer Costs...... 8 EVERYTHING. ENERGY BRIEF: American Energy Drives American Competitiveness...... 11 Fueling America’s Economy...... 12 ENERGY BRIEF: Renewable Fuel Standard...... 13 Fueling Our Future...... 14 Emissions Reductions...... 16 ENERGY BRIEF: Ozone Standards...... 17 Industry Leadership Through Responsible Development....20 Safety Standards...... 20 ENERGY BRIEF: API Publication 1509 Protecting Consumers...... 21 Energy Security...... 22 Reliable Power...... 22 CASE STUDY: Alaska’s Restricted Access to Energy Resources...... 24 Infrastructure...... 26

ENERGY IS ... EVERYTHING Pull-Out Infographic: Our Day of Energy...... 28

ENERGY TOMORROW Growing Our Economy...... 31 Hydraulic Fracturing: The Engine of America’s Energy Resurgence...... 31 ENERGY BRIEF: Good Standards Make Good Neighbors and the Natural Gas Solution...... 33 CASE STUDY: Building the Workforce of the Future...... 34 Energy Exports: Expanding U.S. Global Energy Leadership...... 36 Infrastructure Opportunities...... 40 Securing Our Energy...... 42 Accessing Our Resources...... 42 Pro-growth Tax Policy...... 46 Keeping Fuel Choices Affordable...... 48 CONCLUSION 4 Resources...... 54 5 ENERGY TODAY …IS WHAT MOVES US. ENERGY TODAY

ENERGY REVOLUTION Lowered Consumer Costs

Energy is the foundation upon which and cleaner-burning fuel to heat our modern society rests. Today, our their homes and cook their meals. nation is the world’s leading producer The International Energy Agency of oil and natural gas. estimates that more than 1.2 billion people, or 14 percent of the world’s The 21st century energy revolution population, lack access to electricity, – brought about by advances in the and twice that many, 2.6 billion, live decades-old technology of hydraulic without clean cooking facilities.5 fracturing and innovations in horizontal 1.2 BILLION drilling – has positively touched In fact, according to a 2013 study in PEOPLE IN DEVELOPING NATIONS the lives of all Americans. Whether The Lancet, roughly 3.5 million people, through increased economic opportunity, mostly women and children, die every Without Access to Electricity enhanced national security or the year from respiratory illness as a result abundance of affordable North American of indoor air pollution created by wood oil and natural gas, this revolution is the and other biomass stoves.6 American driving factor in a cleaner environment global energy leadership could help Electricity Access in 2014 - Regional Aggregates source: International Energy Agency, “World Energy Outlook 2016” and lower energy costs for the average significantly increase the number American consumer. of families with access to the clean, affordable energy they need to live For example, according to a 2016 estimate healthier and more productive lives. AFRICA INDIA from AAA, America’s drivers, on average, 244 MILLION saved more than $550 on gasoline in None of this progress or the potential 634 MILLION Without Electricity 3 Without Electricity 2015 due to increased production from of America’s enormous energy Electrification rate: Electrification rate: 81% hydraulic fracturing and horizontal drilling. resources are guaranteed to continue. 45% Urban electrification And an analysis by EIA shows that since If lawmakers pursue energy policies that Urban electrification rate: 96% rate: 71% 2008, roughly the start of the energy constrain domestic oil and natural gas Rural electrification Rural electrification rate: 74% renaissance, average annual energy costs production, particularly from hydraulic rate: 28% per household in the United States have fracturing and horizontal drilling, they dropped by more than 14 percent.4 could consign future generations of Americans and millions of people It is important to remember around the world to a less prosperous that American energy policy has and productive future, because those consequences beyond our borders. energy production technologies account American energy leadership could help for the bulk of our nation’s increased improve the lives of millions of families energy production. in countries and continents thousands of miles away, by providing an affordable

8 9 ENERGY TODAY ENERGY BRIEF

Today, according to EIA, two-thirds It is clear, based on the consensus of America’s natural gas comes opinion of most experts, including the AMERICAN ENERGY DRIVES from hydraulically fractured wells. EIA, that it is unrealistic to suggest that we can meet our future energy needs AMERICAN COMPETITIVENESS Policies that hinder this decades-old, without fossil fuels. The reality is that, proven method of energy production while renewable fuels are an important The American energy revolution has done more Crude oil and natural gas are the building could result in higher energy costs for part of our nation’s energy equation, than just provide record amounts of oil and blocks of many everyday medicines such as America’s consumers, by reducing supply the high-growth renewables remain natural gas to fuel our transportation needs or antihistamines. They are essential to modern at a time of growing demand for energy intermittent and therefore unable to generate electricity and heat our homes, schools fertilizers that ensure a plentiful supply of from all sources. provide a consistent and reliable base and businesses. Increased American energy affordable and safe food, and also provide the for electricity generation. Conversely, production has lowered the cost of energy feedstocks that make modern agriculture possible. America’s energy revolution allows natural gas provides a steady, reliable and manufacturing feedstocks, which helps to In short, oil and natural gas not only provide the our nation to play an important role and cost-effective base that lowers cut energy and materials costs for American power our nation and the world needs, they also in meeting the world’s future energy costs for consumers and also provides manufacturers, particularly producers of steel, help feed people. All of which means that we’ll needs. There is little doubt that we flexibility that makes the use of more chemicals, refined fuels, plastics, fertilizers and need more energy, from all sources, with oil and need more energy far into the future. intermittent sources of energy feasible. numerous consumer products. U.S. industrial natural gas as the base, for decades to come.[iv] Oil Natural Gas Coal Nuclear Power Renewable Energy electricity costs are 30 to 50 percent lower than In fact, the EIA projects that global energy those of our foreign competitors, according to a consumption will increase 48 percent by 2040,[v] 2015 study[i] from the Boston Consulting Group largely due to expanding economic opportunities Total Energy Consumption by Fuel (BCG). American manufacturing costs are now in developing nations. Further, 78 percent of Oil Natural Gas Coal Nuclear Power Renewable Energy 2015–2040Actual 2015 10 to 20 percent[ii] lower than those in Europe global energy needs will be met by fossil fuels. Source: Annual Energy Outlook 2016, Total Energy Supply, Disposition, and Price Summary. and could be 2 to 3 percent lower than China’s by 2018. Lower energy prices give U.S. industries a In the United States, oil and natural gas will Oil Natural Gas Coal Nuclear Power Renewable Energy 37.7% 29.3% 16% 8.6% 8.4% crucial competitive edge and are attracting more supply 68 percent of energy needs by 2040,[vi] Actual 2015 business investment back to the U.S. even under the most optimistic scenarios for renewable energy growth. In less than a America’s energy advantage translates, via decade, our nation’s energy reality has changed Actual0 37.7% 201520 40 29.3% 60 16% 80 8.6% 8.4%100 lower product costs, into the household savings from scarcity, uncertainty and dependency mentioned previously, and it also helps generate to abundance, security and global energy economic growth and jobs. According to the leadership. Today the United States is the 37.7% 29.3% 16% 8.6% 8.4% American Chemistry Council, chemical production No. 1 producer of oil and natural gas on the 0Projected 204020 40 60 80 100 grew 3.6 percent in 2015 and is projected to planet, thanks largely to innovations in the continue to increase through 2020 as new capacity decades-old technique of hydraulic fracturing from 266 new, announced projects and over $164 coupled with advances in horizontal drilling and 0 20 40 60 80 100 billion of investment comes on line.[iii] Further, BCG the dedication of millions of women and men in 35% 33% 10% 7.7% 14.2% Projected 2040 found that lower electricity and natural gas fuel the oil and natural gas industry. costs are “beginning to drive investments such as new iron and steel plants and plastics processing.” Projected0 204020 40 60 80 100 35% 33% 10% 7.7% 14.2% [i] Boston Consulting Group and Harvard Business School, “America’s Unconventional Energy Opportunity,” June 2015, http://www.hbs.edu/competitiveness/Documents/america-unconventional-energy-opportunity.pdf [ii] Fortune, “U.S. Manufacturing costs are almost as low as China’s, and that’s a very big deal,” June 2016, http://fortune.com/2015/06/26/fracking-manufacturing-costs/ [iii] American Chemistry Council, “Energy outlook to 2040: Chemicals and plastics growth — in the U.S. and globally,” February 2016, https://blog.americanchemistry.com/2016/02/energy-outlook-to-2040-chemicals-and-plastics-growth-in-the-u-s-and-globally/ [iv] EIA, “Oil: Crude and Petroleum Products Explained,” June 2016, http://www.eia.gov/energyexplained/?page=oil_home 35% 33% 10% 7.7% 14.2% [v] EIA, “International Energy Outlook 2016,” May 2016, http://www.eia.gov/outlooks/ieo/world.cfm 10 0 20 40 60 80 100 [vi] EIA, “Annual Energy Outlook 2016,” September 2016, http://www.eia.gov/outlooks/aeo/section_energyconsump.cfm 11

0 20 40 60 80 100 ENERGY TODAY ENERGY BRIEF

Fueling America’s Economy RENEWABLE FUEL STANDARD A strong U.S. refining sector continuum.8 Every year U.S. refiners is essential to our nation’s contribute approximately 1.8 percent Renewable fuels have been mandated under API proposes limiting the volume of mandated economic growth. to the U.S. GDP. federal law for over a decade, since the passage ethanol to avoid breaching the blend wall, of the Renewable Fuel Standard (RFS), and current emphasizing free market principles Our nation’s refineries provide us Our nation’s world-class refineries RFS policy is broken, outdated and ineffective. that protect American consumers and with high-quality fuels used for provide fuels and petrochemical The RFS constrains free market forces, supports the automobiles that we drive. transportation, energy for heat and feedstocks needed to manufacture uneconomic activity and limits consumer choice. light, and petrochemicals needed to thousands of everyday products, such It is based on both supply and demand assumptions manufacture the products we use as plastics, pharmaceuticals, fertilizers that have proven false over the past decade, and sets every day. and more. Today, U.S. refining capacity aspirational goals that have proven unachievable; the exceeds 18 million barrels per day,9 its RFS must be repealed or significantly reformed. With an annual salary that, highest level in 35 years, and domestic on average, is more than twice7 refiners are upgrading their operations Today’s gasoline demand is 10 percent lower than the national average, U.S. refiners to produce cleaner fuels and meet the EIA’s outlook at the time of the passage of the support $98 billion in wages and needs of the American consumer. In RFS. And, as a result of technologies that spurred benefits annually, and support more fact, they spent $154 billion between an energy renaissance, crude oil and natural gas than 1.2 million jobs all along the skills 1990 and 2014 on producing cleaner- resources are more than 63 percent higher than burning fuels.10 EIA projections at the time of the passage of the RFS.[i] As we approach the 10 percent ethanol threshold in our fuel mix, which could mean substantial Crude Oil Refining Capacity economic harm to American consumers, it is Thousand Barrels Per Calendar Day imperative that Congress revisit this broken Source: EIA, Refinery Utilization and Capacity; and OPEC, Oil and Gas Data - World Refining Capacity by Country, http://www.opec.org/library/Annual%20Statistical%20Bulletin/interactive/current/FileZ/Main-Dateien/Section3.html. RFS policy.

When the RFS was first implemented about a 20,000

decade ago, our nation’s energy policy was focused

on addressing long-term scarcity and increased

st China energy dependence. America’s 21 century energy 15,000 United States renaissance has transformed our nation’s energy trajectory to one of abundance and energy security, 11,787 which undercuts the basic premise of the RFS. 18,436

Further, purely aspirational volume goals have been

promoted that bear little reality to market conditions. 10,000 Russia

Japan

India

5,744

South Korea

Saudi Arabia Germany 4,340 Canada Italy 4,319 Brazil Venezuela Iran Mexico United Kingdom France 5,000 [i] API Calculations from EIA Technically Recoverable Resources Data from EIA’s 2008 and 2015 Annual Energy Outlooks, 2,959 http://www.eia.gov/oiaf/archive/aeo07/assumption/pdf/oil_gas.pdf and http://www.eia.gov/outlooks/aeo/assumptions/pdf/oilgas.pdf 2,507 2,417 2,115 2,050 2,102 1,855 1,690 1,715 1,524 1,508

0 12 13 ENERGY TODAY

Fueling Our Future U.S. Distillate Supply Thousand Barrels Per Day Source: EIA, Distillate Weekly Supply Estimates, http://www.eia.gov/dnav/pet/pet_sum_sndw_dcus_nus_4.htm The combination of cleaner The progress we’ve made is undeniable; gasoline and diesel fuels, modernized national average peak ozone concentrations 6,000 equipment and facilities and more have dropped by 17 percent since 2000.13 fuel-efficient vehicles has helped reduce U.S. air pollutants by 70 The U.S. oil and natural gas industry is 11 percent between 1970 and 2014 spending billions of dollars developing 5,000 even as vehicle miles traveled new advanced energy technologies to increased by more than 174 percent, reduce greenhouse gas emissions and according to the U.S. Environmental meet future energy needs. Between Protection Agency.12 2000 and 2014, the oil and natural gas 4,000 industry directly invested approximately Refiners have dramatically changed fuel $90 billion in zero- and low-emissions formulations across the country and technologies. This represents about 30 continue to enable significant reductions percent of the more than $303 billion 3,000 in vehicle tailpipe emissions. Gasoline spent by all U.S. industries and the produced today has reduced levels federal government combined.14 of sulfur, toxics and summer vapor 2,000 pressure, improving air quality. Further These large investments are critical reductions in sulfur will continue to to provide the low-carbon energy we build on these improvements in 2020 will need in the years ahead. Domestic and beyond as Tier 3 fuels and vehicles U.S. oil and natural gas companies are 1,000 are phased in and the vehicle fleet turns pioneers in developing alternatives and over. Ultra-low sulfur diesel fuel has expanding America’s use of virtually 99.7 percent less sulfur – and is now every form of energy – from geothermal

produced for all highway and non-road to wind, from solar to biofuels, from 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 uses, allowing for dramatically reduced hydrogen power to the lithium ion High-sulfur Distillate Low-sulfur Distillate Ultra-low Sulfur Distillate nitrogen oxide emissions in newer diesel battery for next-generation cars. +500 ppm 15-500 ppm 15 ppm engines.

14 15 ENERGY TODAY ENERGY BRIEF

Emissions Reductions OZONE STANDARDS The benefits of abundant American for decades to come. Unlike their energy extend beyond a family’s predecessors of just a few years ago, In 2015, the EPA promulgated the strictest ozone The EPA’s 2015 rulemaking, which set the new budget or a business’ bottom line. they will inherit a country that leads standards ever, which are expected to have, at ozone standards at 70 parts per billion, could the world in energy production with best, negligible health benefits, but could impose quadruple the number of counties defined as The plentiful supply of domestically a growing population, an expanding significant costs on consumers and the economy. being in non-attainment to 958. This has the produced natural gas has also reduced economy and a cleaner environment, potential to effectively shut down most new our nation’s greenhouse gas emissions thanks to natural gas and its impact Additional time to implement these standards is economic activity. Businesses of all sizes could be and criteria air pollutant emissions on declining emissions of criteria air imperative to avoid the most significant impacts on forced to navigate additional layers of bureaucracy chiefly from electricity generation. pollutants. The natural gas industry has consumers and our economy. Without additional and red tape to satisfy additional permitting supplied the growth in natural gas use time, these standards are so severe that even requirements. President Trump, members of that fueled the expanding economy pristine areas with little or no industrial activity, Congress and state and local elected and made these emissions reductions such as national parks, would fail to meet the The new administration and Congress should take leaders will decide whether our possible, all while reducing its own standards. The unintended consequence is note of the progress made by the market and nation’s energy revolution continues emissions. that communities could find it more difficult, if continue to build, not hinder, the development of not impossible, to improve aging infrastructure. our nation’s enormous supply of oil and natural Local businesses would be unable to expand, gas resources, rather than pursue policies that constraining job creation and economic growth, either restrict production or add unnecessary all with little benefit to public health. regulatory regimes that limit the use of hydraulic Methane Emissions Falling While Production Rises fracturing and horizontal drilling. U.S. Natural Gas 2005 to 2014 Source: http://cdn.api.org/test/zee-updates/dist/#/?section=chart-usNaturalGas Projected Eight-Hour Ozone Non-attainment Areas Based on a three-year period, 2012–2014 50% Source: United Research Services, August 3, 2015. 47.3%

42.5% 43.1%

40%

30%

20%

10% Methane Emissions From Natural Gas Systems Dry Production Pipeline & Distribution Natural Gas Consumed by Sector Electric Power 0% -0.68% Monitored CBSAs and rural counties that would be violating a 70 ppb standard -10%

Unmonitored areas that are anticipated to violate a 70 ppb standard based on spatial interpolation 16 17 ENERGY TODAY

America’s energy revolution has and other areas is reducing emissions. CO2 emissions from power generation emissions but also water use, because disproved the long-held assumption According to the study, regional are projected to decrease by as much water requirements for cogeneration that increased energy production emissions dropped 65 percent for as 30 percent from 2005 levels by 2030, are often less than those for the same creates higher emissions. nitrogen oxide, 92 percent based on the continued increased use power generated by coal-fired boilers for sulfur dioxide and 35 percent for of natural gas for power generation.16 or steam-condensing turbines. For The fact is that even while production carbon dioxide between 2005 and 2014. example, a 525 megawatt cogeneration has significantly increased, total The oil and natural gas industry unit at a refinery might require 6 million criteria air pollutants and greenhouse “The decline in emissions is also focused on how to meet gallons per day (MGD) of water intake, gas emissions have fallen, in national and global energy needs as while a similar 525 megawatt coal-fired large part due to expanded use of during this period reflects efficiently as possible. A long-standing boiler could use more than 14 MGD.17 abundant, affordable natural gas in shifts in the regional fuel example is the use of excess heat Using half the water to create the same electricity generation. from normal operations to convert amount of electricity is a valuable mix,” the report states, steam to electricity in order to power a savings for the environment, the Between 2000 and 2014, the oil and “with increasing natural cogeneration plant. This has the ability consumer and the refinery. natural gas industry directly invested gas generation offsetting to lower not only greenhouse gas approximately $90 billion in zero- and low-emissions technologies. Many of decreases in coal-and oil- these investments are in technologies fired generation.” Electric Power Sector CO Reduction that reduce leaks, capture emissions 2 Million Metric Tons of CO2 and improve energy efficiency. As The plentiful, affordable and Source: EIA. a result, our nation’s environment dependable supply of U.S. natural continues to improve. In fact, the United gas, coupled with the fuel’s Emissions Reduction in Fossil Generation Emissions Reduction From Increase Mix From Shift Toward Natural Gas in Non-carbon Generation States is already one-third of the way to environmental advantages, makes the emissions reductions target sought it a logical alternative, because it 300 by the Paris Climate agreement. Under achieves what were once thought to 266 the Paris agreement, the United States be mutually exclusive goals: providing 250 229 is expected to cut its carbon emission more energy with a smaller impact on 223 levels between 26 percent and 28 our environment. 200 percent below 2005 levels by 2025. 169 According to the EPA’s 2016 Inventory To date, CO2 emissions from power 155 150 147 of Greenhouse Gases and Sinks: 1990- generation, the largest source of 135 126 2014, U.S. carbon emissions were 9 117 greenhouse gas emissions in the 107 percent below 2005 levels, even as U.S., have fallen 17 percent since 2000.15 100 95 the U.S. economy continued to grow. Even without an emissions reduction 70 62 61 requirement in place, API modeling 50 33 Further, an Independent System projects natural gas will continue to 28 27 Operator New England study illustrates drive emissions reductions in the 0 how the increased use of natural gas power sector, due to fuel switching. -7 in power generation, transportation -50 2006 2007 2008 2009 2010 2011 2012 2013 2014

18 19 ENERGY TODAY

INDUSTRY LEADERSHIP THROUGH RESPONSIBLE DEVELOPMENT reduce engineering costs and improve The fundamental mission of the equipment interchangeability and Center for Offshore Safety is to Safety Standards product quality. promote continuous improvement in offshore drilling, completions and Safety is the No. 1 priority for the and Hazardous Materials Safety Industry’s commitment to improving operations through effective leadership, petroleum and natural gas industry. Administration and the Occupational the safety of offshore operations collaboration, communication, Safety and Health Administration, goes beyond setting globally accepted teamwork, disciplined management For almost a century, the industry as well as BSEE. Additionally, API’s standards. To accelerate the creation systems, independent third-party has advanced workforce safety and standards are the most widely and implementation of best practices auditing and certification, with a focus operational efficiency primarily referenced petroleum industry that reduce risk and improve the safety on company safety and environmental through the American Petroleum standards used by state regulators, of offshore operations, the industry management systems. Institute’s standard-setting program. with over 240 API standards cited over established the Center for Offshore As part of API’s Global Industry 4,130 times in state regulations. Safety. It has become the focal point The center is a clear demonstration Services (GIS), API now maintains for safe offshore energy development, of the oil and natural gas industry’s almost 700 standards covering all These standards are developed in an through ongoing collaboration between commitment to safe operations and segments of the petroleum and open, third-party accredited process all stakeholders. understanding that when it comes to natural gas industry. API standards with subject matter experts from a safety, there is no room for second best. also add to the ever-growing body of wide range of disciplines, including knowledge of industry best practices academia, government regulators and lessons learned, which continues and industry experts, who all come to deliver significant improvements together with one goal: to improve in system integrity, reliability and and advance the safety of energy integrated safety. development. This decades-long, ENERGY BRIEF demonstrated commitment to safety API’s standards are referenced in is at the heart of the industry’s federal regulations because they credibility and ability to safely deliver are recognized to represent industry the energy our nation and the world best practices based on today’s need from some of the harshest and API PUBLICATION 1509 best available science and research. most unforgiving environments on For example, the Bureau of Safety the planet. PROTECTING CONSUMERS and Environmental Enforcement (BSEE) references 95 API standards On the production side, high-quality API standards help protect the American API conducts a voluntary certification program in its offshore regulations. Overall, industry standards promote safe and consumer. API Publication 1509, the “Engine of engine oils that licenses approved oils to bear more than 130 API standards are proven engineering practices both Oil Licensing and Certification System,” sets the API “seal of approval.” Consumers know that referenced in more than 430 citations onshore and offshore in the design, the performance standards for passenger if a product bears the API seal of approval, then by government agencies, including fabrication, installation and operation vehicle engine oil and includes rigorous testing that product has been rigorously tested to meet the Coast Guard, the Environmental of materials and equipment. These and quality requirements. This API standard their needs. Protection Agency, the Federal standards also improve safety and is referenced by every major U.S. auto Trade Commission, the Department environmental performance, help manufacturer as acceptable for use in of Transportation’s Pipeline their engines.

20 21 ENERGY TODAY

ENERGY SECURITY Reliable Power

Market forces, federal and state What is in question is whether the oil legislatures, and environmental policy and natural gas industry will be given are driving the ongoing shift in our access and the opportunity to develop nation’s power generation mix. those resources to meet our nation’s and the world’s energy needs. Today, Natural gas use in the electricity market there remains a stark difference between has grown by 86 percent since 2000,18 energy development trends on federal driven by these forces. Administrators land compared to those on private and of regional electricity markets and state land. balancing authorities are charged with ensuring that our nation’s electricity grid Between 2010 and 2015, the percentage is reliable. Environmental and electricity of the nation’s crude oil produced on policy must coexist in the states, where federal land decreased from 35.7 percent regulators are also charged with to 21.0 percent.19 And according to the protecting consumers. States are Bureau of Land Management, the number interested in providing consumers with of drilling permits issued on federally a generation mix that is clean, reliable controlled onshore land dropped by 47 and affordable, and natural gas plays a percent from 2008 to 2015.20 Further, critical role in meeting all three goals. federal data show crude oil production remained flat between 2010 and 2015 on Natural gas generation is capable of federally controlled land, while natural providing on-demand “dispatchable” gas production declined 27 percent.21 power, ramping up quickly and following In contrast, on private and state lands, real-time changes in electrical load. where drilling typically does not require This means natural gas generation can federal approval, production increased replace traditional coal and nuclear 115 percent for crude and 66 percent power that are no longer economic, as for natural gas from 2008 to 2015.22 The well as support intermittent renewable stark difference between production on power. Natural gas generation keeps the federal land and state and private land is power on and grid stable when the sun not just due to ineffective and inefficient doesn’t shine and the wind doesn’t blow. national energy policy; it’s also bad federal fiscal policy. If production on federal lands To sustain a clean, reliable and affordable had grown at the same rate as overall power supply, federal, regional and U.S. production, from 2009 through state regulators need to recognize that 2015, total royalties would have been 31 a market-driven diversity of attributes, percent higher, with an additional $20 not an arbitrary, government-mandated billion in royalties collected by the federal fuel mix, will lead to the lowest cost and government.23 If our nation is to continue most reliable power for consumers. It is a to be a world leader in energy production, 22 matter of fact that within our borders, our that difference has to decrease, if not 23 nation has enormous energy resources. disappear. ENERGY TOMORROW

In 2013, the federal government which puts at risk our nation’s long-term announced roughly half of the reserve energy security and ability to meet the CASE STUDY would be put off-limits to oil and gas nation and the world’s energy needs. [iii] development, and to date no commercial drilling for oil and natural gas has occurred. Restricting this nation’s access to the ALASKA’S In 1980, Area 1002 was set aside for oil and energy resources in the Arctic, at a time natural gas production within the Arctic when other nations are actively exploring National Wildlife Refuge. the region, could inhibit our access to RESTRICTED important energy resources in the future. Today energy development in Area ACCESS TO ENERGY 1002, as in much of the Arctic, remains prohibited by restrictive federal policies,

RESOURCES Arctic | Energy Security Barriers to Development Source: National Petroleum Reserve in Alaska, https://www.blm.gov/ak/st/en/prog/energy/oil_gas/npra.html

Alaska

Map area Prudhoe Bay Pt. Thomson

Atqasuk (1002 Area) NPRA TAPS ANWR Alaska‘s North Slope accounted The U.S. Geological Survey (USGS) e ng s Ra for 25 percent of U.S. domestic estimates that the National Northern Margin of Brook oil and natural gas production Petroleum Reserve – Alaska, which in 1988, but production has encompasses about 23 million plummeted because the U.S. acres and is the largest single government has largely prevented block of federally managed land in exploration for new resources the U.S., holds 896 million barrels in the state, both onshore and of oil and 53 trillion cubic feet of [ii] offshore. Total North Slope natural gas. In 1923, the reserve [i] EIA, Alaska Crude Oil Production, https://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_a.htm [ii] USGS, Economic Analysis of the 2010 U.S. Geological Survey Assessment of Undiscovered Oil and Gas in the National Petroleum Reserve in Alaska, http://pubs. production fell to approximately was set aside as an emergency oil usgs.gov/of/2011/1103/ofr2011-1103.pdf [iii] USGS, Arctic National Wildlife Refuge, 1002 Area, Petroleum Assessment, 1998, Including Economic Analysis, 465,000 barrels per day in 2015, supply for the U.S. Navy and today https://pubs.usgs.gov/fs/fs-0028-01/fs-0028-01.htm a 76 percent decrease from 1988.[i] is open to “oil and gas leasing, 24 exploration and operations.” 25 ENERGY TODAY

natural gas, which would otherwise by 60 percent.30 IHS estimates that travel by longer and more costly means. investments in building, maintaining and Infrastructure As impressive as our nation’s energy updating the oil and natural gas industry’s infrastructure is, it is in need of transportation and storage infrastructure American consumers’ growing cubic feet of natural gas throughout the expansion to keep pace with a growing could contribute, on average, $120 billion energy appetite means greater country at a safety rate of 99.99 percent.25 population, demand for goods and to the economy per year.31 demands on our nation’s energy The U.S. will need more pipelines to services and energy needs. Investing in infrastructure, including pipelines, keep pace with growing production and our nation’s infrastructure will not only Increased capital investment in energy railroads, highways, waterways consumer demand. The current lack of allow the oil and natural gas industry infrastructure will also lead to more and ports. energy infrastructure negatively affects to keep pace with energy demand, it revenue and output among supplier consumers. For example, because will also help keep energy affordable industries, such as steel, machinery A robust infrastructure system that is of infrastructure bottlenecks in the for the consumer, while creating well- and engineering services. This capital safe, efficient and properly maintained Northeast, New England’s household paying jobs, giving U.S. manufacturers investment, in turn, could trigger can help lower the costs of supplying oil energy prices are among the highest a competitive advantage through lower an estimated $45 billion per year and gas and its products for consumers, in the nation – with all six states energy and raw material costs and throughout the extended supply chain.32 by reducing congestion, maximizing ranking in the top 10 for highest costs providing revenue to local, state and To sustain our nation’s positive energy efficiency and preventing accidents. of energy.26 In 2015, New England federal governments. trajectory and position as a global families paid on average 53 percent energy leader, the new administration The country’s energy infrastructure more for their electricity than the rest The private sector is responding by and Congress should work with the system was originally built to move of the nation. Specifically, with the investing millions in our nation’s energy private sector to enable the expansion oil and gas from the coasts, where it exception of Maine and Pennsylvania, infrastructure. Between 2010 and 2013, of our nation’s energy infrastructure was delivered by ship, to the refining consumers in the Northeast in 2015 capital spending in the infrastructure through consistent regulation and centers and populations inland. have paid between 30 percent to 70 that moves and transforms oil and gas efficient processes. Today, the U.S. energy renaissance percent more for their energy than the into everyday products has increased is driven by the enormous amount national average.27 of energy resources found in inland formations, including the Eagle Ford Since 2010, transportation of crude The Benefits of Marine Transportation and Barnett in Texas, the Woodford oil by rail in North America has grown The Importance of Waterborne Transportation in Oklahoma, the Bakken in North significantly from 23.8 million barrels to Dakota and Marcellus under the states 318.8 million barrels in 2015. In 2015, of Pennsylvania, New York, Ohio, railroads transported approximately 8 Maryland and West Virginia. To reach percent of U.S. oil production, with a America’s full energy potential, we need safety record of 99.99 percent.28 to maintain our existing infrastructure and invest in new infrastructure that will The global trade of oil and natural gas is ONE TANKER= move U.S. resources from these inland dependent on our nation’s ports and formations to refineries and, ultimately, waterways to move crude oil to our 5 Inland 15-Barge Tows consumers. nation’s refineries, export refined 1,080 Rail Cars + 30 products and natural gas to markets Locomotives Pipelines are a modern, safe and efficient abroad and move products domestically 5,250 Semi Tractor- way to move oil and natural gas from on our vast inland waterway system. Trailers where it is produced to where it is refined These waterways are still the backbone and processed to where it is used. In of the freight network, carrying the Source: National Waterways Foundation, “WATERWAYS: Working for America: 2008”, 2014, 500,000 miles of liquid and natural equivalent of about 51 million truck http://www.oecd.org/sti/ind/48337841.pdf; gas transmission pipelines transported trips of goods each year.29 These marine National Waterways Foundation/Texas 16.2 billion barrels of crude oil and highways are a crucial way to carry large Transportation Institute, “Update to a Modal 26 Comparison of Domestic Freight Transportation 27 24 petroleum products and 27.3 trillion amounts of cargo, including oil and Effects on the General Public - September 2011” ENERGY TOMORROW … IS ESSENTIAL. ENERGY TOMORROW

Few anticipated America’s rapid rise GROWING OUR ECONOMY as a world energy leader. During the past decade, American crude oil Hydraulic Fracturing: The Engine production jumped 88 percent and of America’s Energy Resurgence natural gas production increased 46 1 percent, catapulting the United States U.S. Department of Energy statistics The EIA cites “increased to our current position as the world’s show “up to 95 percent of new leading oil and natural gas producer. wells drilled today are hydraulically use of natural gas for It’s paying off for consumers. fractured, accounting for more than electricity generation” 43 percent of total U.S. oil production as the primary reason In 2015, drivers saved an average of over and 67 percent of natural gas 2 carbon emissions have $550 in gasoline costs. Additionally, production.”6 8 households saved $1,337 through lower dropped. home energy costs and lower costs for In other words, the American energy other goods and services.3 And it’s paying renaissance, and millions of jobs Preliminary findings from a landmark off for American manufacturers, whose and numerous economic benefits it EPA study released in June 2015 9 electricity costs are 30-50 percent lower has made possible, would not have confirm that the technology is safe. than those of foreign competitors.4 We happened if not for technological The five-year, $31 million study of also lead the world in reduction of carbon advances in hydraulic fracturing and hydraulic fracturing “did not find emissions, which are near 20-year lows horizontal drilling that have unlocked evidence that these mechanisms have due to the increased use of clean-burning previously inaccessible resources in led to widespread, systemic impacts on natural gas.5 shale formations. drinking water resources in the United States.” The EPA’s exhaustive study is We may not have seen Hydraulic fracturing, in combination the most complete compilation to date of scientific data on the issue, including the American energy with horizontal drilling, has made the United States the world’s leading more than 950 sources of information, revolution coming, but we producer of oil and natural gas, while published papers, technical analysis, know how to sustain it. generating significant job growth. contributions from stakeholders and peer-reviewed EPA scientific reports. The U.S. model provides a blueprint for A 2013 IHS study found that energy Revisions released in December 2016 future energy policy, demonstrating that from shale and other tight-rock do not change the fact that the science market-based solutions are the most formations supported 2.1 million jobs and data demonstrate that hydraulic effective path for achieving success in 2012, and that number was projected fracturing is safe. in both energy production and our to increase to 3.9 million jobs by 2025, environmental goals, all while generating including 500,000 manufacturing jobs.7 The EPA study is just one of many economic growth and delivering By helping to lower power and materials during the course of the technology’s significant savings that provide relief costs, as well as stimulating economic 65-year history to affirm the to household budgets and competitive activity for a variety of businesses like effectiveness of industry standards advantages to businesses. service and supply companies, hydraulic and strong state regulations in keeping fracturing has supported economic hydraulic fracturing operations safe for growth in an otherwise struggling the environment. In February 2016, the economy. What’s more, hydraulic University of Cincinnati completed a fracturing is a primary factor in three-year study in which researchers emissions reduction achievements. examined water samples three to 30 31 ENERGY TOMORROW ENERGY BRIEF

four times per year from 23 wells the hydraulic fracturing of deeper in the Utica shale region. The study conventional and unconventional oil GOOD STANDARDS found no evidence linking fracking to and gas zones can be considered very groundwater contamination.10 low.”11 As the driving force behind the MAKE GOOD NEIGHBORS American energy renaissance,12 hydraulic The current regulatory approach – a fracturing has helped lower fuel, utility Thanks to technological advances in hydraulic êê Help local leaders and residents prepare combination of federal oversight and manufacturing costs while also fracturing and horizontal drilling that have for energy exploration through multiple regulatory agencies, contributing to reduced greenhouse unlocked previously inaccessible energy resources, êê Minimize interruption to the community plus strong state regulations tailored gas emissions through an abundance of more and more communities are taking part in êê Conduct public meetings on safety to local geology and hydrology – affordable, clean-burning natural gas.13 America’s ongoing energy revolution – and the êê Work with local educational institutions to is effective for keeping hydraulic The optimal policy approach to this new jobs and economic growth it brings. discuss training for new job opportunities fracturing safe and successful. integral technology is one that recognizes êê Develop relationships with mineral owners the emissions reductions that industry has To facilitate community engagement in oil and êê Enhance the long-term benefits of local A 2014 report from the Groundwater and will continue to achieve, recognizes natural gas development areas, API developed development Protection Council documented the effectiveness of state regulations, a first-of-its-kind “good neighbor” industry êê Ensure that oil and gas production is done “continuous and significant regulatory accepts the scientific evidence and standard, which includes recommendations to: in a way that complements community goals improvement by state oil and gas avoids additional regulations that could agencies across the county” and discourage production while providing concluded “the risk of fracture fluid little or no additional environmental or intrusion into groundwater from safety benefits. THE NATURAL GAS SOLUTION

U.S. Marketed Natural Gas Oil Production in the U.S. Emissions reductions, reliability and affordability – In fact, API’s analysis of the potential impacts of the Production Billion Cubic Feet Per Day (2000-2015) Million Barrels Per Day the shale revolution is delivering major benefits to EPA’s Clean Power Plan on cost, generation and Source: EIA, Marketed Natural Gas Production, Source: EIA, Oil Production, http://www.eia.gov/todayinenergy/detail.php?id=26112# http://www.eia.gov/todayinenergy/detail.php?id=25372 the power generation sector, and all signs point to capacity found that the lowest cost compliance continued advantages. U.S. natural gas production pathway was always the solution that relied upon over the past three years has exceeded even the the most natural gas generation.[ii] Policy choices 80 10 From Hydraulically Fractured Wells From Hydraulically Fractured Wells high-end resource projections from the U.S. Energy that promote market solutions over government (67% in 2015) (51% in 2015) [i] 70 Information Administration. mandates will allow continued growth in natural From Non-hydraulically Fractured gas generation, providing a solution for regulators Wells (33% in 2015) 8 60 From Non-hydraulically Fractured Wells Market-driven natural gas generation growth is responsible for ensuring a clean, reliable, (49% in 2015) projected to continue, and emissions per megawatt affordable generation mix. 50 6 of total electricity generation are projected to decline. Continued increases in reserve estimates and industry 40 technological advances since 2010 make clear that 4 natural gas will remain an affordable, environmentally 30 friendly option for the nation’s power plants.

20 2

10 [i] Department of Energy/EIA, “Annual Energy Outlook 2016, ”August 2016, http://www.eia.gov/forecasts/aeo/pdf/0383(2016).pdf [ii] API (Using ICF’s Integrated Planning Model), “The Natural Gas Solution: API’s Modeling of EPA CPP,” October 2016, http://www.api.org/~/media/Files/Policy/Natural-Gas-Solutions/API-Modeling-of-EPA-CPP.pdf 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 32 33 ENERGY TOMORROW

A report from consulting firm attorneys, business leaders, architects, IHS projects 1.9 million new oil, communications specialists and health CASE STUDY natural gas and petrochemical job and safety experts are also in demand. opportunities by 2035, including BUILDING THE 707,000 positions projected to The industry is partnering with schools, be held by African American and labor organizations and the government Hispanic workers, and 290,000 to increase awareness of energy job WORKFORCE OF jobs filled by women.16 opportunities and to promote greater participation in science, technology, Among the projected 1.9 million new engineering and math (STEM) subjects. THE FUTURE job opportunities, 57 percent We’re working with Hispanics in Energy are projected to be in blue-collar and the American Association of Blacks occupations, indicating great in Energy to spread the word about opportunity for workers with the IHS report’s findings that 707,000 high school diplomas and some post- positions are projected to be held by secondary training. According to the African American and Hispanic workers. U.S. Census Bureau, only 40 percent of And we’ve started a Veterans Energy working-age Americans have at least Pipeline program to connect veterans a two-year degree, making Americans with career opportunities compatible without college education the majority. with their unique skill sets. The oil and natural gas industry is a bright spot for these workers. In With above-average salaries and an fact, IHS projects more than 1 million abundance of career opportunities job opportunities in the industry – ­in projected over the next two decades, occupations such as construction the oil and natural gas industry offers workers, truck drivers, welders, solutions to wage stagnation and electricians and mechanics – income inequality, which remain providing individuals without formal major concerns in our still-struggling Although the global market conditions gas industry, that means the next college education the opportunity for economy. Capitalizing on energy are challenging, keeping pace with two decades will bring us closer to meaningful and well-paying careers. job opportunities doesn’t require a American energy needs will require a the “Great Crew Change” we’ve been government program or taxpayer substantial increase in the workforce anticipating for years, when up to Another 32 percent of job opportunities funding. All it takes are smart energy long term – in part due to demographic 50 percent of the industry’s most in the industry are projected to be policies and increased awareness of job trends. The U.S. Census Bureau projects experienced workers are expected in management and professional opportunities to ensure the “Great Crew one in five Americans will be age 65 or to retire.15 fields. In addition to the engineers Change” is the game changer it can be over by 2030.14 In the oil and natural and geoscientists most people picture for America’s workers. when they think of the energy industry,

34 35 ENERGY TOMORROW

Energy Exports: Expanding U.S. Global Map of 2035 Relative Income Impacts from LNG Exports Energy Leadership (By State Income) Source: ICF estimates. As the world’s leading producer of oil U.S. crude has shipped to the United and natural gas, the United States has Kingdom, France, Germany, Italy, a valuable opportunity to expand our Switzerland, the Netherlands, Israel, economy and geopolitical influence by China and Panama – further diversifying exporting a portion of our abundant global supply options, boosting the oil and natural gas resources. U.S. economy through increased trade activity with Europe and providing an Allies seek U.S. energy as a reliable outlet for U.S. producers. Further, the alternative to energy supplies from fuel cost increases predicted by those less stable regions, and expanded who opposed lifting the ban did not access to additional international materialize. markets promises positive impacts on economic growth, job creation Last year also saw a milestone for and the trade balance. exports of liquefied natural gas (LNG) as the first cargo carrying U.S. LNG left The lifting of the crude export ban in port in February,19 bound for Europe.20 December 2015 paved the way for Another landmark development new opportunities for U.S. producers occurred in July, when the first U.S. LNG – and demonstrated the positive shipment passed through the newly outcomes possible when policymakers expanded Panama Canal. The canal come together to advance bipartisan, expansion is a major enhancement for

commonsense energy policies. U.S. competitiveness, reducing transit High LNG Exports Case Middle LNG Exports Case ICF Base Case A relic of ‘70s-era energy scarcity, time from Gulf Coast export terminals the ban was rendered obsolete by to Japan to 20 days, compared to the the American energy revolution, and previous 31 to 34 days (moving either studies show that maintaining it would through the Suez Canal or around the ENERGY EXPORTS ENHANCE NATIONAL have meant missing out on significant southern tip of Africa, respectively) and SECURITY economic benefits – an estimated also reducing travel time from the Gulf 300,000 American jobs and $5.8 billion Coast to potential South American LNG “When more supply originates from producers who are not vulnerable to political instability, per year in consumer savings by 2020 markets.21 conflict or threats to their energy infrastructure, the overall market becomes more stable. in gasoline, heating oil and diesel costs, … [A]llowing U.S. oil exports would enhance the energy security of key U.S. partners, from Poland to India, to Japan. Indeed, our closest allies in Europe and Northeast Asia would 17 according to ICF International. welcome – and have asked for – the unrestricted export of U.S. crude oil … Enabling U.S. oil exports would strengthen our geopolitical influence, leadership and leverage with allies and In 2014, the number of nations buying adversaries alike.”

American crude oil was eight. In 2016, Michele Flournoy after export restrictions were lifted, that Former Undersecretary of Defense number rose to 22.18 Obama Administration22

36 37 ENERGY TOMORROW

After a decade that saw U.S. natural A 2014 Department of Energy study Our ability to expand the economic and gas production jump 50 percent,23 found that exporting U.S. LNG strategic benefits of our position as the the advent of natural gas exports will reduce global greenhouse gas world’s leading natural gas producer to strategic allies represents a emissions, because U.S. natural gas is tied to our ability to expeditiously significant expansion of U.S. global consumed in Europe or Asia has lower approve exports. In addition to the energy leadership. life-cycle GHG emissions than power extensive environmental review process generation from locally sourced fossil required for the largest LNG export The United States is projected to become fuels.28 Greater natural gas production facilities, exports to non-Free Trade the world’s third-largest LNG supplier in and use also lowers emissions of Agreement nations require an additional five years, behind Qatar and Australia, other air pollutants, such as mercury, approval from the Department of Energy according to an International Energy sulfur dioxide, nitrogen oxide and that has proved to be a lengthy, Agency (IEA) report.24 LNG exports could particulate matter. sometimes unpredictable, process. contribute up to 452,000 jobs nationwide As of December 2016, more than 20 U.S. between 2016 and 2035 and add up U.S.-produced natural gas can provide facilities still awaited approval, and more to $73.6 billion annually to the GDP, the same security advantages as those than half of those applications were sent according to an ICF International study.25 associated with crude oil exports. Access to the Department of Energy in 2014 or to U.S. LNG is a key aspect of renewed earlier.31 Meanwhile, dozens of LNG export Just as greater use of natural gas for U.S. European Union efforts to improve projects are currently planned or under electricity generation26 has reduced our energy security for European nations construction in other nations. carbon emissions to levels not seen in that “are still far too vulnerable” to supply more than two decades,27 U.S. natural disruptions, according to EU officials.29 The international competition to meet gas can bring emissions reduction global LNG demand is well underway, progress to other nations. and streamlining the approval process is critical to U.S. ability to capitalize on our production advantages. 2016 was a breakthrough year for expanding “Like shale gas was a game changer in the U.S., U.S. energy leadership through exports American gas exports could be a game changer for of crude oil and natural gas. Through policies that remove export delays Europe,” said Maros Sefcovic, who heads the EU’s “Energy Union” project team. and barriers, we can build on that progress and ensure that the economic, The mayor of a Lithuanian town that just opened a natural gas import terminal geopolitical and security benefits from to break reliance on Russian natural gas explained the geopolitical implications U.S. exports reach their full potential. succinctly, commenting: “U.S. LNG is more than just about gas. It’s about freedom.”30

38 39 ENERGY TOMORROW

Infrastructure Opportunities

America’s game-changing production With production growth in areas increases would not have the same like the Midwest and Pennsylvania, positive impact on consumers’ daily expanding our pipeline system will lives without infrastructure to deliver ensure that we move energy efficiently, affordable, reliable energy to homes maximizing the economic and and businesses. environmental advantages of our status as a world energy leader. Energy infrastructure consisting of pipelines, storage, processing, rail Multiple studies illustrate the potential and maritime resources is an often economic benefits. According to a report underappreciated component of the released by the University of Illinois American energy revolution, yet it at Urbana-Champaign, oil and natural is essential to delivering its benefits gas projects related to the Marcellus to every state. shale region from 2008 through the first half of 2014 were responsible for Over 500,000 miles of natural gas and more than 72 million man hours of petroleum products transmission direct and indirect labor construction. pipelines cross the United States, and This translates into more than that capacity must be expanded to keep 40,000 construction jobs.33 If energy pace with 21st century production trends infrastructure needs are adequately and to ensure that Americans from every prioritized, those jobs are just the state share in the benefits of affordable beginning. According to a study by IHS, domestic energy. As the world’s leading updating America’s energy infrastructure producer of oil and natural gas, U.S. could generate up to $1.15 trillion in new energy infrastructure needs have private capital investment, support 1.1 changed. According to a study from million new jobs and add $120 billion, Energy Policy Research Foundation Inc., on average, per year to our nation’s GDP shipments of crude oil from the Gulf between 2014 and 2025.34 ENERGY INFRASTRUCTURE of Mexico to the Midwest decreased

500,000 barrels per day (b/d) between Working with federal and state BENEFITS COMMUNITIES 2008 and 2013, while shipments from regulators, the oil and natural gas Beyond state and local taxes, energy infrastructure can be an economic lifeline to local the Midwest to the Gulf jumped from industry has processes in place to communities. At a 2015 congressional hearing, Jackie Root, Pennsylvania farmer and president of the National Association of Royalty Owners, told lawmakers: “The constant stress of just 50,000 b/d to over 380,000 b/d.32 ensure that pipeline construction is fluctuating commodity prices and unpredictable weather is softened a bit with additional safe. State and federal policies that income from leasing, royalties and pipeline right-of-way. Over the long term, I believe facilitate transparent and timely project natural gas development will actually preserve our precious open space; successful 35 review, as well as set and maintain farmers will farm the land rather than subdivide it.” realistic deadlines for pipeline approval, will do much to expedite construction and expand infrastructure to enhance the delivery of affordable energy that consumers and businesses need.

40 41 ENERGY TOMORROW

SECURING OUR ENERGY Unlocking America’s Offshore Energy Opportunity (Billion Barrels — Bbl and Trillion Cubic Feet — Tcf) Source: Bureau of Ocean Energy Management, “Assessment of Undiscovered Oil and Gas Resources of the Nation’s Outer There’s no question; the American energy renaissance Continental Shelf, 2016”, https://www.boem.gov/2016-national-assessment-fact-sheet/ has delivered significant economic and environmental benefits – so significant that it can be easy to take our new energy reality for granted. With gas prices low and imports down, adding production capacity may not seem 4.6 Bbl 10.2 Bbl 38.2 Tcf as urgent. But, just as today’s energy security is the result 16.1 Tcf

of production set in motion years ago, now is the time to Mid-Atlantic

Chukchi Sea 15.4 Bbl lay the groundwork for energy security in future decades. 76.8 Tcf South Atlantic 26.6 Bbl Beaufort Sea 8.2 Bbl 131.5 Tcf 27.6 Tcf

Cook Inlet Off Limits Accessing Our Resources 1.0 Bbl Western Gulf Central Gulf Eastern Gulf Presidential 1.2 Tcf 11.57 Bbl 33.3 Bbl 3.6 Bbl 39.0 Tcf 91.3 Tcf 11.5 Tcf Moratorium Under Consideration 37 for Seismic Survey World energy consumption will Quest Offshore Resources. The Open 48.5 Bbl increase 48 percent by 2040, and 78 economic benefits associated with 141.8 Tcf percent of energy needs will be met that level of production are significant. by fossil fuels, according to the latest Between 2017 and 2035, expanded 87% of federal offshore acreage is off limits to development projections from the EIA.36 offshore production could create nearly 840,000 new American jobs, The question is not whether the grow our economy by up to $70.2 United States has the resources to billion per year and raise over $200 maintain our position as a world billion in cumulative revenue for the energy leader, along with the myriad government. economic and security benefits U.S. MANUFACTURERS: ENERGY that confers; it is whether we will Access to resources in the Arctic Ocean implement policies to capitalize on is just as critical. The Beaufort and ACCESS CRITICAL TO AMERICAN our ample oil and natural gas supplies. Chukchi seas off the coast of Alaska COMPETITIVENESS contain more technically recoverable Government policy keeps 87 oil and natural gas than the Atlantic percent of federally controlled and Pacific coasts combined, according “For manufacturing to succeed, access to reliable and affordable energy is essential,” states the National Association of Manufacturers, noting that “our oil 38 offshore acreage off-limits to to government estimates. Access and natural gas production has been a boon for manufacturing growth and productivity energy development. Opening to the world’s largest remaining in recent years.”40 areas in the Atlantic, Pacific and conventional, undiscovered oil and Eastern Gulf of Mexico could lead natural gas reserves – 13 percent The American Chemistry Council concurs, commenting, “A supply strategy that includes OCS (Outer Continental Shelf) energy will support the manufacturing renaissance to production of more than 3.5 of recoverable oil and 30 percent of taking place in the United States.”41 million barrels of oil equivalent recoverable natural gas resources – per day, according to research by is at stake.39

42 43 ENERGY TOMORROW

Given the long lead time required A draft plan for 2017-2022 announced U.S. Oil and Natural Gas Production on Federal vs. to develop offshore projects, taking in 2014 by BOEM would have opened Non-federal Lands and Waters production opportunities off the table the Atlantic to exploration. But in Million Barrels Per Day (Crude Oil) Trillion Cubic Feet (Natural Gas)

is shortsighted and jeopardizes our March 2016, the administration Source: Congressional Research Service, U.S. Crude Oil and Natural Gas Production in Federal and Non-federal Areas, June 2016. energy security for at least the next backtracked,42 removing the Atlantic decade. As other nations pursue their despite strong statewide public support 8 30 own future energy security priorities for offshore development in North Crude Oil in the Arctic, a U.S. presence means strict Carolina (64 percent), South Carolina 7 NON-FEDERAL 43 25 U.S. safety standards and best practices (67 percent) and Virginia (65 percent). Natural are also there. The final plan announced in November 6 Gas 2016 dealt a further blow to future 20 Dedicated efforts to improve safety energy security, setting additional 5 systems and capabilities ensure restrictions on Arctic exploration. 4 15 offshore development is safer than ever. Further, decades of experience To maintain American energy 3 FEDERAL 10 operating in Arctic environments leadership, build energy security shows the oil and natural gas industry for future decades and create jobs, 2 Crude Oil has the technology and expertise expanding access onshore and 5 1 Natural to safely develop Arctic offshore offshore must be a top priority in Gas resources. the next Congress and presidential 0 0 administration. 2008 2009 2010 2011 2012 2013 2014 2015 The ability to take full advantage of America’s oil and natural gas resources hinges on periodically updated leasing plans developed by the Bureau of MILITARY LEADERS: ARCTIC ACCESS IS Ocean Energy Management (BOEM). CRITICAL FOR SECURITY, GEOPOLITICAL PRIORITIES

Former Clinton administration Defense Department Secretary William Cohen, along with 14 other military experts, wrote the Department of Interior in 2016,44 urging the Obama administration to maintain energy exploration options in the Arctic because removing them “would harm our ability to protect our interests and to promote cooperation in the region.”

While Russia and China have significantly increased their presence and activity in the area, “Arctic capabilities of the U.S. have dramatically declined ... [and] our reduced Arctic presence and capabilities challenges the U.S. ability to positively influence all developments in the region,” the letter continued.

“Arctic offshore energy development will occur,” the military leaders pointed out, “whether or not the U.S. participates, as other countries pursue the Arctic’s large energy resources to meet long-term energy needs.”

44 45 ENERGY TOMORROW

Pro-Growth Tax Policy environmental programs, to even growth and encourage investments royalty payments that can sustain in America’s future. That’s especially Tax policy can have just as much The U.S. oil and natural gas industry family farms and businesses – oil and true for capital-intensive industries impact on energy security as access pays its fair share. From 2011 to 2015, natural gas development generates like oil and natural gas. Given energy’s decisions can, and the relationship oil and natural gas industry income local economic benefits well beyond central place in family budgets and between taxes and energy production tax expenses (as a share of net income producing affordable, reliable energy. U.S. economic and security objectives, is a two-way street that can lead before income taxes) averaged 38.5 the best tax approach is the one that to either mutual benefit or mutual percent, compared to 25.8 percent Tax policy is about more than balancing encourages robust oil and natural gas detriment. for other Standard & Poor’s Industrial revenues with expenditures. At its most development. companies.47 Rather than invest effective, tax policy can support job On the positive side, pro-energy where the best tax regime can be policies – including smart tax found, oil and natural gas companies policy but also expanded access, invest where the resource is located, infrastructure investment and export continuing to spend billions of dollars Economic Impacts of Policy Choices Projected 2025 Numbers capability – can increase government on new and existing domestic projects Source: Wood Mackenzie Energy Consulting. revenue and jobs.45 Shortsighted energy each year despite U.S. tax rates that policies, like duplicative regulatory are the highest in the developed world. constraints and industry tax hikes, can INCREASE DEVELOPMENT MORE OR LESS? reduce government revenue and job Maintaining tax policies like the opportunities. deduction for intangible drilling costs is an important way to avoid stifling Government The oil and natural gas industry energy investments. Oil and natural Revenue $111 BILLION contributes about $70 million a day, gas companies deduct operating on average, to the federal government costs when filing taxes, just like 1 MILLION in revenue from taxes, rents and every business in America.48 These Jobs new jobs royalties.46 The government’s interest business expenses for the drilling in maintaining or increasing this and preparation of wells are a direct Energy revenue is best served not by investment in the U.S. economy, 2.8 MILLION barrels of Production oil and natural gas per day increasing taxes but by increasing creating jobs and stimulating state energy production, which in turn and local economies. The ability can serve the even more important to recover those costs, similar to purposes of economic and energy research and development deductions Government $260 BILLION security growth. used by other industries, is key to Revenue maintaining cash flow that helps An analysis by Wood Mackenzie found companies drill more wells. pro-development energy policies could Jobs 800,000 jobs grow government revenues by $111 From property taxes that supply billion. Shortsighted energy policies, revenue for schools, to state and Energy like duplicative regulatory constraints, local taxes that fund road and bridge 2.6 MILLION barrels of Production oil and natural gas per day could reduce government revenue by improvements, water and sewer $260 billion. projects, local housing initiatives and REGULATORY CONSTRAINTS

46 47 ENERGY TOMORROW

Keeping Fuel Choices Affordable Market Reality vs. RFS Mandates Billions of Gallons Source: EIA and EISA, https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MGFUPUS1&f=A Energy security means not just availability of fuels but 200 affordability and choice.

America’s refining industry supplied AEO 2007 132 billion gallons of gasoline and 56

billion gallons of ultra-low sulfur diesel Consumption level needed in 2015 that fueled the economy.49, 50 to avoid blend wall 150 Billions of dollars are invested each year by U.S. refineries, which are the November 2016 STEO (EIA) most technologically advanced in the Mogas (actual) world, making fuels cleaner and more AEO 2015 (EIA) efficient and meeting the needs of consumers for their cars, lawnmowers, power equipment and boats. Maintaining 100 maximum affordability and choice should 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 be a top policy priority for regulators and legislators.

For the Renewable Fuel Standard (RFS), that means aligning ethanol volume E85 Not a Solution to the Blend Wall requirements with market realities. Annual Gasoline Demand Source: U.S. Department of Energy. The Environmental Protection Agency’s mandated volume for 2017, which will force an additional nearly 1.2 billion ACCORDING TO THE EIA, THE ANNUAL AMOUNT OF gallons of ethanol and other biofuels into the nation’s fuel supply, does E85 SOLD IN 2015 IS LESS THAN 1 PERCENT not reflect consumer preferences.51 OF ANNUAL GASOLINE DEMAND. Availability of ethanol-free gasoline (E0) has declined due to the RFS. However, significant demand remains. Americans LESS THAN 1 PERCENT OF purchased 5.3 billion gallons of E0 in 2015,52 but the EPA 2017 volume GASOLINE DEMAND requirements incorporate only 200 million gallons.

48 49 ENERGY TOMORROW

To meet its targets, the EPA anticipates A diverse coalition of restaurant associations,58 increases in the use of higher ethanol grocers,59 producers of poultry, pork and blends that experience shows are beef,60 environmental non-profits, and unrealistic. anti-hunger groups61 have called for repeal or significant RFS reform, and editorial In 2015 hearing testimony, the Society of boards of major newspapers concur. Independent Gasoline Marketers of America/ National Association of Convenience Stores Arguing that “there is no doubt it should told Congress: “To date, very few retailers be repealed,” the Washington Post62 editorial selling mid-to high-level ethanol-gasoline board explains: “Blending more and more blends such as E15 or E85 have seen ethanol into gasoline will require spending substantial sales of these products. Quite money on infrastructure that is not yet in the opposite: Most retailers that sell E15 place and selling more fuel that older and or E85 have seen minimal sales of these more specialized engines cannot take.” products. Indeed, retailers have found that even consumers with E85-compatible flex- When Congress approved the current RFS 53 fuel vehicles tend to purchase E10.” in 2007, the U.S. energy outlook was vastly different. Today, U.S. success as the world’s The current trajectory for ethanol leading producer of oil and natural gas requirements pushes us closer to the blend has helped advance the primary goals of 54 wall, the point at which federal mandates the RFS. Increases in domestic production require more ethanol in the fuel supply have helped drive down energy imports, than can be safely blended as standard E10 fuel costs and – through greater use of gasoline. About 85 percent of vehicles were clean-burning natural gas – greenhouse gas 55 not designed to use higher blends like E15, emissions. To preserve consumer choice, which studies show can potentially cause maintain affordability and prevent potential 56 engine damage. In fact, use of higher engine damage and economic harm, federal ethanol blends could even void warranties ethanol policy should be overhauled to of some vehicles. reflect consumer preferences, vehicle needs and America’s 21st century energy reality. In addition to potentially limiting consumer choice by jeopardizing availability of lower ethanol blends, the RFS could lead to USA Today calls the mandate increased fuel costs. A 2015 NERA Economic a “folly” that “forces consumers Consulting study projected a possible 30 to buy billions of gallons of percent reduction to the fuel supply and “severe economic harm.”57 ethanol, a costly and inferior fuel produced mostly from corn.”63

50 51 CONCLUSION

The American people Above all, we will remain responsible stewards of the natural resources we want, and the economy develop and a good neighbor and citizen and future generations to the communities in which we operate. deserve, affordable, The oil and natural gas industry is committed to forging a consensus on reliable and abundant energy policy that drives economic growth, energy that can be increases American competitiveness and provides to our allies an energy partner that developed and delivered uses its considerable energy resources as a safely and with respect way to lift people up. for our environment. Our central message to President Trump, members of Congress, and state and The only way we will achieve that important federal regulators is straightforward: Energy goal is through a true all-of-the-above, is fundamental to our society. Thanks to market-based and consumer-focused American innovation and entrepreneurial national energy policy. Fortunately, what spirit, the United States is the world’s leading it takes to remain a world leader in energy producer of oil and natural gas, as well as the production is not a matter of guesswork or leading refiner of fuels and petrochemicals. abstract theory. We know what works when And we welcome the partnership of anyone it comes to American energy because in just who shares our vision of a brighter, a few short years our nation has emerged prosperous and environmentally responsible from decades of energy scarcity, dependency energy future for our nation. and uncertainty into this new era of American energy abundance and leadership. We believe that our nation’s best future will only be achieved through an all-of- At the beginning of a new presidency and the-above national energy strategy that a new Congress, we urge our nation’s recognizes the fundamental role of oil leaders to embrace the American energy and natural gas. revolution already underway. Future generations of Americans deserve What we want and what the American people nothing less. deserve is energy policy that continues our nation’s status as a global energy leader. As we look to the future, the oil and natural What the State of American Energy report gas industry stands ready to offer solutions makes abundantly clear is that American that help meet the energy needs of our energy is American progress. And that energy nation and the world, and to work with is fundamental to our quality of life in ways elected leaders at all levels of government both small and large. to ensure that the American consumer

continues to benefit from affordable and reliable domestically produced energy.

53 ENERGY TODAY RESOURCES ENERGY TOMORROW RESOURCES

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54 55 23. EIA, “U.S. Dry Natural Gas Production,” October 35. Jackie Root, Testimony to House Agriculture 46. API analysis of statistical information available 57. NERA Economic Consulting for API, “Economic 2016, http://www.eia.gov/dnav/ng/hist/n9070us2A. Committee hearing on “Energy and the Rural from the Department of Interior’s Office of Impacts Resulting from Implementation of the htm Economy: The Impacts of Oil and Gas Production,” Natural Resource Revenue and the Internal RFS2 Program,” July 2015, http://www.api.org/~/ April 2016, http://agriculture.house.gov/ Revenue Service. media/Files/Policy/Fuels-and-Renewables/NERA_ 24. IEA, “Medium-Term Gas Market Report,” June uploadedfiles/root_testimony.pdf FINAL_API_RFS2_July27.pdf 2016, https://www.iea.org/newsroomandevents/ 47. Compustat North American Database, “Oil and pressreleases/2016/june/iea-sees-major-shifts-in- 36. EIA, “International Energy Outlook 2016,” May 2016, Natural Gas Companies: GICS Industry Group 58. 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Energy Tomorrow, “Hitting the Wall on the RFS,” Not Expand Offshore Drilling Into Atlantic,” Produced LNG From the Lower-48 States,” June March 2016, http://www.energytomorrow.org/ March 2016, http://www.energytomorrow.org/ 2016, http://energy.gov/sites/prod/files/2016/06/f32/ blog/2016/03/25/hitting-the-wall-on-the-rfs blog/2016/03/15/offshore-energy-off-limits-policy Summary%20of%20LNG%20Export%20Applications.pdf 55. American Automobile Association, “Comment 43. API, “What America Is Thinking on Energy Issues,” 32. EPRINC, “Pipelines, Trains and Trucks: Moving on the Environmental Protection Agency February 2016, http://www.api.org/oil-and-natural- Rising North American Oil Production to Market,” (EPA) Proposed Rule: Renewable Fuel gas/wells-to-consumer/exploration-and-production/ October 2013, http://eprinc.org/wp-content/ Standard Program: Standards for 2014, offshore/mid-and-south-atlantic-poll-results uploads/2013/10/EPRINC-PIPELINES-TRAINS-TRUCKS- 2015, and 2016 and Biomass-based Diesel OCT31.pdf 44. Arctic Energy Center, “Statement of Foreign Policy Volume for 2017,” July 2015, http://www. and National Security Specialists on the Proposed regulations.gov/#!documentDetail;D=EPA-HQ- 33. University of Illinois at Urbana-Champaign, 2017-2022 OCS Oil & Gas Leasing Program,” June OAR-2015-0111-2037 “Study of Construction Employment in Marcellus 2016, http://arcticenergycenter.com/wp-content/ Shale Related Oil and Gas Industry,” August 56. Coordinating Research Council, Inc., “Durability uploads/2016/06/2016-06-15-Statement-of-National- 2014, http://anga.us/media/blog/CC3DAD70- of Fuel Pumps and Fuel Level Senders in Neat and Security-Specialists-on-Arctic-OCS-Program.pdf 5056-9F69-D486E62E37BC2D70/files/ICERES_-_ Aggressive E15,” January 2013, http://www.crcao. Marcellusjobsstudy_FINAL.pdf 45. Wood Mackenzie, “A Comparison of U.S. Oil and com/reports/recentstudies2013/CRC%20664%20 Natural Gas Policies Pro-development Policies vs. %5bAVFL-15a%5d/AVFL%2015a%20%5bCRC%20 34. IHS for API, “Oil & Natural Gas Transportation & Proposed Regulatory Constraints,” June 2015 664%5d%20Final%20Report%20only.pdf Storage Infrastructure: Status, Trends, & Economic Benefits,” December 2013, http://www.api.org/~/ media/Files/Policy/SOAE-2014/API-Infrastructure- Investment-Study.pdf

56 57 NOTES

58 WWW.API.ORG

American Petroleum Institute | Washington, D.C. | January 2017