The Bedrock of the Canada-United States energy relationship: fostering job creation and energy security through the development of clean oil, coal, and natural gas.

• Position: Conference: US and Canadian Energy Relationship

Session Chair--Steven Reed

Speaker--John Felmy

Speaker--Steve Winberg

Speaker--Danielle Droitsch

INTRODUCTION

MR. REED: Good morning. Welcome to our panel discussion on the Canada-United States energy relationship. My name is Steve Reed. (1) I am an attorney with the law firm of Steptoe & Johnson in Washington, D.C. and for the last thirty years or so, I have been specializing in United States federal energy regulation, particularly with respect to Canada-United States energy relationships, and now representing our good friends from Enbridge (2) for a year.

Before I introduce our three distinguished panelists, I wanted to say just a few words about our over-all topic. As you all know, we live in a world with a growing appetite for energy in all forms and, as a result, developments in the energy sector sparked a great deal of interest, not just from industry insiders but from the general public as well. We only have to think about the news stories that have dominated the headlines for the last several months. For example, the nuclear disaster in Japan that is raising questions around the world about the future of nuclear power. (3) Political developments in the Middle East that are leading to rising oil prices that threaten the economic recovery around the world, as well as impacting people directly at the gas pump. (4) Closer to home, in terms of the Canada-United States energy relationship, is an ongoing controversy in the United States over whether to issue a Presidential permit for the Keystone Pipeline to carry crude oil from Western Canada to the United States Gulf Coast. (5) It has featured an aggressive public campaign on both sides. Living in Washington, I even hear ads on the radio each day driving to work with pros and cons on the Keystone Pipeline, a truly unforeseen development.

In short, this is an unusually pivotal time in the world energy sector. Important and far-reaching decisions are being made daily that are going to affect industries in both countries and the public as well.

With that background, we are truly fortunate to have with us three distinguished and knowledgeable panelists who can give us valuable insights into the issues affecting the Canada-United States energy relationship today.

First up today will be John Felmy, Chief Economist of the American Petroleum Institute in Washington. (6) John has a long and extensive background in the energy industry stretching back more than thirty years. A Ph.D. economist from the University of Maryland, John is responsible for overseeing the economic statistical and policy analysis done at the American Petroleum Institute, which is an organization that represents more than four hundred members of all aspects of the petroleum industry.

Our second speaker today will be Steve Winberg, (7) who is the Vice President for Research and Development in Coal Conversion and Power Development at CONSOL Energy (8) in Pittsburgh. Like John, Steve has more than thirty years of experience in many aspects of the energy industry, including such leading topics today as carbon capture and sequestration, coal-to-liquids conversion, greenhouse gas limitation technology, and other areas. I would also point out that Steve has his Masters of Business Administration from the University of Pittsburgh and John is a graduate of Penn State, so I hope we can keep the Panther/Nittany Lion rivalry to a minimum here.

Our last speaker is Danielle Droitsch, (9) who is the Director of United States Policy for the Pembina Institute in Washington. (10) The Pembina Institute is an organization dedicated to analyzing and supporting sustainable energy solutions. Danielle, I would note, was originally from the Washington area where I live, Arlington, Virginia. However, she moved to Canada with her husband where she became the Executive Director of Water Matters in Alberta before coming back to the United States to take her current position at Pembina in 2010.

So without further ado, I will turn this over to the panelists and we will hopefully reserve a few minutes at the end for questions and answers.

REMARKS OF JOHN FELMY

MR. FELMY: Thank you very much. I am truly honored to be here. This is a very important topic at a critical time for both our countries. I would like to share with you my thoughts in terms of energy, where we are going, and, more importantly, where we should not go and what mistakes we should not repeat that we have made in the past.

But before that, I thought I would share a little history of our industry with you all. If you read the President's most recent State of the Union Address, he called the oil industry an "old industry." (11) That is right. We are over one hundred and fifty-one years old; the industry started August 27, 1859. (12) A year and a half ago about fifty energy geeks in Washington got together, hired a bus, and took a six-hour drive up to Oil City in Titusville. That is kind of a daunting thought of having that many geeks on a bus for that long but we entertained ourselves with lectures and briefings and so on, and so it was really exciting. For those of you who have never been there, this is the memorial to Colonel Drake. (13) The burial place is in front of it. We visited that in Titusville.

We also visited the world's oldest operating oil well. This is the McClintock Number 1 well. (14) This operates once a year. It has been operating since 1860. (15) They produce a little oil and they sell that oil in the Drake Well Museum. They sell that oil, a one-ounce bottle, for two dollars. Now, how expensive is that? Does anybody know how many ounces there are in a barrel of oil? There are forty-two gallons, of course, and you multiply that times 128 and you get $5,376. So that oil sells for almost eleven thousand dollars a barrel. Pretty good.

We also visited the original site of the industry. This rather small area is the National Trust designation. That is where it all started, with Colonel Drake producing commercial oil. (16) We visited one of the bigger gushers of oil places that they had, a real boomtown. This is a quaintly named place called Pig Hole, and this was a town that had gushers of oil of one hundred barrels a day. (17) A town sprung up with fifteen thousand people in it. (18) It was the third largest post office in Pennsylvania. (19) They pumped oil for five hundred days. (20) The oil ran out. (21) They tore everything down and left, and you would have no idea that there was actually oil produced there. I bring that up because every time I hear Sarah Palin saying, "Oh, once you produce oil, it will be horrible forever," that is of course not true. Now, they also sell oil here in a little museum. Nobody lives here, but they have a museum and sell that one-ounce bottle for five dollars, so that is twenty-seven thousand dollars a barrel. Pretty good.

And of course, with my history lesson, I will say that I also did a lecture on it. I was tasked with talking about a very important pipeline in the United States, since we have been talking about Keystone XL, (22) and I personally am very excited about the prospect of that line being developed. I talked about the original major pipeline in the United States, the Tide Water Oil Line. (23) It ran from Bradford, Pennsylvania, northwest all the way down through the Williamsford-Muncy area, ultimately to Bayonne. It was a cast-iron line screwed together with collars, dug by hand, and it was built by the independents who were trying to break John D. Rockefeller's hold on rail transportation. (24) He had monopolized the rails. (25) So they were producing oil but they could not ship it anywhere. In response, they built this line, finished it in 1879, and ran it for a few years. (26) Then they sold out to John D. as part of one of the original Standard Oil trusts. (27) They made a lot of money and did good.

The reason I was lecturing on it is because I worked on this line as a kid. No, not in 1879, but I did work on it as a kid, and so that is how I got my start in the oil business. I started off with an honest job, and then I turned to the dark side and became an economist. Since I have never seen most of you folks before, it gives me an opportunity to tell you an economist joke.

What is the definition of an economist? Of course, there are many but my favorite definition is an economist is somebody who is real good with numbers but does not have the personality to be an accountant.

So where are we as an industry? In Washington, everybody is saying you are an old industry, you are going to disappear; this is all the rhetoric that you hear. We are an industry that is responsible for 9.2 million jobs (28) and seven to twelve percent of gross domestic product; (29) as Carl mentioned, it is a very important sector. But yet we are dismissed as being just an old industry that does not contribute much.

We are also an industry that is owned by tens of millions of Americans. (30) Probably every one of you here owns a piece of an oil company whether you know it or not, either through IRAs or pension funds, fully forty percent of the equities of the companies, and in money market funds and everything else. (31) In all, half the states have major investments. (32) So when you hear people proposing to tax the oil industry, we are going to tax the industry, we are going to take money for them. Grab your wallet because it is probably coming out of your pocket whether you know it or not, and that is just another example of Washington, where you can choose to demonize people and things and so on. It has no basis in reality.

So let me turn to markets right now, because of course that is what everybody is asking about and it is fundamental to what our energy policy is. This is a graph that I show just to help explain a very simple relationship between crude oil, gasoline, and diesel fuel. (33) The blue line is crude oil in dollars per gallon. There are forty-two gallons in a barrel, and so let us see...