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Gasoline's Triple Crown: Affordable, Clean and Reliable

By Pat Woertz, President
Chevron Products Co.

Greater Louisville, Kentucky

It's a pleasure to be here today to talk to you about one of my favorite subjects -- energy.

With gas prices being where they've been over the last several months, I'm sure many of you have your own thoughts about the topic. And we can talk about that today.

I've actually been in town since late last week. Chevron was a sponsor of the Kentucky Derby Festival. And we had a chance to meet with customers and suppliers during the last two weeks.

I guess you could say horse racing is in my blood. My Dad has loved horses for many years. He and my mom came in for the weekend, and we just had a great time.

I must say the highlight of my visit here was the Derby. It really does live up to its billing as "the greatest two minutes in sports."

The Derby's been a part of Kentucky since 1875, and Chevron's been here for almost as long -- since 1886. Back then, coal was the energy of choice. And Chevron was Standard Oil of Kentucky, part of an empire run by John D. Rockefeller -- a man who could be best described as the Bill Gates of the 19th century.

Today, Chevron is a $60 billion company with 32,000 employees, operating in 100 countries. We produce oil and natural gas, gasoline, jet fuel and chemicals. We're a major player in oil production in the Former Soviet Union, Africa and the Gulf of Mexico. I oversee Chevron's refining and marketing business, which operates six refineries in the United States and 8,000 retail sites.

Louisville is an important market for us. We have 60 branded retail sites here, a lubricants plant and a regional business center that coordinates customer service activities. Not counting people in our gas stations, we have about 120 employees in Louisville.

Our people here are not only good employees but wonderful ambassadors for Chevron in the community, contributing their time and money to make Louisville a better place to live.

I always enjoy meeting with groups like this, because it allows me the opportunity to talk about the value that energy brings to our daily lives: freedom, mobility and independence -- and on a larger scale -- jobs, commerce and growth.

Today, I will talk about energy with respect to how it concerns you the most. And I'll boil my remarks down to three questions that are always on people's minds: What's going on with prices? Is it safe for the environment? Are we going to run out?

Let's start with prices.

The average price for a gallon of regular unleaded in Louisville has been running about $1.40 recently. I should mention that about 15 cents of that is for state tax and 18.4 cents is for federal tax. It's no secret when gas prices go up because they're posted on big huge signs right out in front of every station. And people react, sometimes emotionally, because gasoline is something we all need.

I, too, am concerned about prices. Chevron doesn't like tight product supplies, and we don't like angry customers.

We face two critical realities: the United States imports more than half of its crude oil, and the United States is the largest consumer of oil in the world.

Coming from California, the prices in Louisville actually look like a bargain. They're about 40 cents cheaper than gas sold at the station in my neighborhood. But if I talk to someone visiting San Francisco from -- let's say Europe -- then California gasoline prices look like a steal. Gasoline costs about $4 a gallon in France and almost $5 a gallon in Britain. About 75 percent of those prices are taxes.

Here in the United States, the simple explanation for high or low gas prices is supply and demand. But it gets complicated.

The balance between the two can be knocked out of whack by a lot of reasons: competition, bad weather, refinery incidents, war and seasonal demand spikes -- just to name just a few.

Recently, prices were affected by crude oil supplies. Increases in the cost of crude oil directly affect all petroleum fuel prices. This is where supply and demand really comes into play for American consumers. We face two critical realities: the United States imports more than half of its crude oil, and the United States is the largest consumer of oil in the world. So, we're heavily dependent on others for products we use in abundance.

The world consumes 77 million barrels of oil a day.

The United States consumes 19 million barrels a day -- or 25 percent.

The 11 countries that make up OPEC, the Organization of Petroleum Exporting Countries, have a lot to say about how readily available the world oil supply is.

Remember in school those bright yellow books called "Cliffs Notes"? They were nice, tidy summaries of books on the required reading list. I'm sure no one in this room ever used them, but we've all heard about them.

At any rate, here's the Cliffs Notes version of what happened with oil supplies over the last year: OPEC controls about one-third of the world's oil supply. And it's tried for years to act as a cartel so it could fix world oil prices.

In 1997, OPEC decided to boost its output because they thought demand was rising fast. That same year, the Asian Financial Crisis hit. Demand dropped big time, resulting in a global surplus of oil. Oil prices fell throughout 1998. And in 1999, they hit a 70-year low of $11 a barrel.

Motorists were loving life. Gasoline in most states dipped below a dollar a gallon. OPEC countries lost about $50 billion. So, in March '99, they agreed to reduce production.

Within a couple of months, oil prices started rising. The surplus disappeared; oil inventories fell to historic lows. The oil market reacted with $30-a-barrel oil. And the pendulum of prices swung the other way. Motorists were not happy. Basically, OPEC zigged when the market zagged, and they did this twice. So now OPEC is increasing production again.

What does all of this mean?

I believe Red Cavaney, president of the American Petroleum Institute, summed it up best during his recent testimony before the U.S. Congress. He said: "Just as prices are up now, they will turn down when factors change, and change they will."

Red's right. The good news is that recent reports show gas prices declining a bit. The bad news is that the summer driving season will probably keep them fairly high.

With all that said, gasoline is still a good value. Gasoline in the last 15 years or so is up just 7 percent. Take the taxes off gasoline, and the average price in recent years is actually about a dollar a gallon. If you take the national average price for regular gasoline -- about $1.50 a gallon -- and adjust it for inflation, it's actually cheaper than gasoline was in the early '60s. That's a bargain by any definition.

The second issue I'd like to address is the impact our products have on air quality.

You may be surprised to learn that as our population has grown and the number of cars has increased, our air has gotten cleaner. EPA data confirms it: Air emissions dropped 29 percent between 1970 and 1995.

You may be surprised to learn that as our population has grown and the number of cars has increased, our air has gotten cleaner.

Cars and the fuel they use are big contributors to improvements in air quality. The auto industry is building better cars that emit less pollution and get better gas mileage. And oil companies are making cleaner-burning gasoline.

Why? Because the public demanded it; government required it; and industry delivered it.

Over the years, we have:

  • removed lead;
  • created vapor recovery systems (you know that big plastic cover over the gasoline nozzle -- it keeps fumes from getting in the air);
  • developed additives that make engines run better and emit less pollutants into the air.

What does all this add up to? It now takes more than 20 brand new cars to produce the same tailpipe pollution of just one new car built in the 1960s.

I'm proud to say that Chevron is the largest producer of the cleanest gasoline in the world. In California and here in Kentucky, cars burn what is called reformulated gasoline. It's a special blend that reduces emissions.

Reformulated gasoline is required by the federal government in cities with smog problems. In Kentucky, it's required in Louisville and Covington. In California, the State government requires manufacturers to produce an even cleaner version.

Now, I'd be remiss if I didn't say something here about MTBE (methyl tertiary butyl ether).

You may have read articles in the Courier Journal about how MTBE is fouling the water supply and people want to ban it.

MTBE is an oxygenate. And just as it name implies, it's a chemical added to gasoline to increase its oxygen content. It's also a component of reformulated gasoline.

I want to provide a little perspective on this issue because it's very important.

Back in the early '90s, the federal government mandated that MTBE be used in reformulated gasoline. At the time, we didn't think it was appropriate for EPA to be cooking up recipes for gasoline. Besides, we don't believe MTBE -- or any oxygenate for that matter -- is necessary. We make fuel that doesn't contain MTBE, and it burns just as clean as all our other gasoline.

But now MTBE is showing up in drinking water and people are concerned. It gives water a taste similar to turpentine. Nobody wants to drink something like that.

So let me be very clear about Chevron's position on this issue. I spend a lot of time in Washington and in California's capital, Sacramento, about our position: We want MTBE out. Our customers want it out. The time is now to get rid of MTBE.

There is an alternative, and that's ethanol, which is derived from corn. I know a lot of local farmers are certainly glad to hear about this new development.

Now, the issue around oxygenates is not resolved, but we're working toward a resolution. And we're getting close.

The third issue I want to discuss is supply.

The question has been asked over and over again for the last 50 years: Are we going to run out of oil? And at various times, the answer has not always been reassuring.

In the 1950s, we had a 20-year supply. In the early 1970s, a widely publicized report predicted that we would run out of oil in the 1990s. And the 1973 oil embargo and gas lines seemed to support that conclusion.

Let me put your mind at ease: World crude oil reserves are greater than they've ever been before. In total, we have more than a trillion barrels that we know of.

Let me put it another way: If we never found another drop of oil, we'd have enough to last another 75 years.

However, technology has always made sure that those expiration dates on the world oil supply keep getting moved back.

Oil and gas have always been a high-tech business. We use remote sensing satellites to help find oil fields and use 3-D seismic software to look inside them.

Technology has allowed us to drill in the harshest and most remote locations on the planet. In 1965, if we wanted to drill for oil offshore, we could only drill in 300 feet of water. Now we routinely drill in waters more than a mile deep.

And who knows what new technology the Information Age will bring.

Now, I'll acknowledge that most people don't spend a lot of time thinking about the inner workings of the petroleum industry. They just know that when they pull into a gas station and turn on the pump, gasoline will flow, and they'll quickly be on their way.

The good news is that the dependability of gasoline is rarely in question. In the last 50 years, the only time consumers didn't have a dependable supply was during the 1970s. And those problems were created by government attempts to influence the market -- not short supplies.

In terms of future supply, we're going to need to find new oil because demand is growing. Every person on this earth is a potential energy customer. In that respect, the potential consumer base is growing at a rate of 250,000 a day.

Most experts see demand for all kinds of energy growing steadily over the next 10 to 20 years. The world consumes 77 million barrels of oil a day. In 10 years, that number will be 90 million. So we're going to need more.

The good news is that history tells us that we will find more and find new ways to recover more of what we find.

You might ask: What about alternatives such as electric cars?

The most significant obstacle for electric cars right now is that they don't go far enough on a charge. One alternative is already here: the hybrid-electric car. It's the best of the electric car and the conventional gasoline combustion engine car combined.

Toyota and Honda both have models coming out this year for around $20,000, and they get up to 60 miles per gallon.

Hybrids will get a growing share of the new car market in the future. But they won't make a big impact overnight.

I'm optimistic about the future of energy even with all of its volatility. I'm optimistic about air quality. Gasoline is clean and getting cleaner, thanks to the happy marriage between cleaner fuels and cleaner vehicles.

Energy is essential to driving the economies of the world. And it's linked to progress and prosperity.

I'm optimistic about supply. The petroleum industry has always met the challenge of finding new oil.

I don't think anyone disputes the benefits that energy contributes to our daily lives. It gives us the mobility and freedom to go where we want, when we want to go -- whether it's taking the kids to practice, driving to work or flying across the country.

Energy is essential to driving the economies of the world. And it's linked to progress and prosperity. You don't have to go very far to see what I'm talking about. Here in Kentucky, production of transportation equipment is now one of the state's largest revenue industries. So in that respect, ample energy is critical to every Ford Explorer rolling off the assembly line at the Kentucky truck plant, and to every Corvette coming out of Bowling Green.

Energy is critical for businesses large and small. It makes it possible for all those UPS jets taking off from Standiford Field to reach global markets.

Energy connects Louisville to the world and connects the world to Louisville.

And you can bet that Chevron will continue doing our part to make sure that our energy supply is affordable, clean and reliable.

Updated: May 2000