The American Petroleum Institute Annual Meeting

By Kenneth T. Derr, Chairman of the Board and Chief Executive Officer
Chevron Corporation

Annual Meeting

Los Angeles, California

Let me start my comments by recognizing a major milestone. As I noted at the start of the meeting, this year marks the 75th Anniversary of the American Petroleum Institute, and I think that's something worth celebrating.

The U.S. petroleum industry has achieved an outstanding record over those 75 years, by any measure you choose to apply -- production volumes . . . reserves replaced . . . pace of technological growth and change . . . or the number of seemingly insurmountable obstacles overcome.

Let me just read you a statement of one such obstacle by a petroleum expert:

Quote: "Although an estimated two-thirds of our reserve is still in the ground . . . the peak of U.S. production will soon be passed -- possibly within three years."

That expert was USGS Chief Geologist David White, and he delivered that warning in 1919 -- the year in which API was founded.

His was not the first pessimistic forecast for the American petroleum industry. And it sure wasn't the last.

Over the years, we've heard any number of doomsday pronouncements that the world was about to run out of oil . . . any number of predictions that our industry was about to fade into the sunset.

And they've all been wrong.

For 75 years . . . and more . . . our industry has provided the fuel for the economic growth of this nation . . . and other nations around the world.

Offhand, I can't think of another industry where American companies are so dominant . . . so respected . . . and so much in demand all over the world.

Other nations are drawn to our financial resources, certainly. But I believe the essential attraction is American petroleum technology and management skills. We still lead the world in technical know-how -- just as we have done from the earliest days of the industry.

And we've used that technology not only to help develop new energy supplies around the world, but to help modernize developing nations in other ways as well. American companies have built roads and bridges, dug water wells, and established schools and hospitals where none existed before.

It's ironic that our international standing should be so high at the same time that our standing at home seems so low. Because, the fact is, the petroleum industry has played a key role in building the powerhouse economy of this great nation.

We've managed to give American consumers everything they want in the way of energy -- uninterrupted supplies of the highest quality products at the lowest possible prices.

It's an amazing fact . . . and one our customers are generally unaware of . . . that gasoline prices now are near their lowest level ever -- once you take out taxes and adjust for inflation.

A gallon of gasoline in 1919 cost 26 cents. In today's dollars, that would be about $2.20. And that money was all going for the fuel -- there was no tax.

That's an amazing testament to modern cost efficiency. Just think about the tremendous technical and logistical complexity of today's industry compared to that early era. And yet we can somehow sell the final product at a lower real price.

And I hope it's clear by now that we're not running out of oil any time soon.

In 1950, world crude reserves were about 76 billion barrels -- a 20-year supply at the rate of consumption of that era. Since then, the world has consumed 600 billion barrels, yet still has about 1 trillion barrels in proved reserves -- a 50-year supply at today's rate of consumption.

The total resource ultimately available will, of course, be much larger.

At the same time, the petroleum industry has learned how to meet the public's demand for environmental health and safety.

In fact, I can't think of another industry that has accomplished so much in the way of pollution reduction . . . yet received so little credit for it.

But look at what we've done.

Take the tough case of air emissions.

Across the nation, air emissions have declined dramatically from 1970 to 1990: Particulates dropped 59 percent . . . volatile organic compounds, 29 percent . . . sulfur dioxide, 25 percent . . . and carbon monoxide has declined 41 percent.

Yet, in the same period, Gross Domestic Product grew 69 percent.

In 1990, 98 areas failed to meet new Clean Air Act standards for ozone. By the end of 1992, 46 of them met the standard.

Or consider the industry's record for safe operations in offshore drilling.

In the 20 years between 1971 and 1991, the industry drilled more than 21,000 wells on the Outer Continental Shelf, and produced more than 7 billion barrels of crude oil and condensate. The total amount spilled from those operations in 20 years was just about 900 barrels -- or one one-hundred-thousandths of one percent.

That's an incredible record. And the critical point is, it is the record of an entire industry . . . and a very complex and diverse industry at that.

Yet in spite of that record, our nation has essentially eliminated all offshore prospects -- with the exception of the Gulf of Mexico -- for future exploratory drilling. And, as many of you know, onshore permits continue to get more and more difficult. These actions assure continued growth in our oil imports and the export of U.S. jobs overseas.

Improving our performance as an industry is the critical test, and API has played an absolutely vital role in enabling us to perform . . . and to be perceived . . . as an industry.

Those efforts have been greatly enhanced by several recent initiatives.

I think API's STEP program is critical for our future. At the heart of these Strategies for Today's Environmental Partnership is a very powerful idea from the field of Total Quality Management -- namely that "whatever can be measured can be improved."

This year we have a new environmental performance report which measures our industry in six crucial dimensions. And by the way, the STEP report card verifies what I just said about our growing accomplishments.

Another very good idea from the government side is Administrator Browner's "Commonsense Initiative." I think every one in our industry can support the concept of making regulations "cleaner, cheaper, smarter."

And, Carol, if I could make one suggestion: do you think you could also add the word "fewer" to that list? The refining industry looks forward to working with you on this initiative.

Actually, this touches on the main issue I want to raise today: I believe industry today is still virtually suffocating under a heavy blanket of regulation. I'm afraid that . . . in the public and private sector alike . . . we're losing sight of the bedrock importance of economic growth.

Set aside the issue of any new or pending legislation. What we're all wrestling with is the cumulative impact of laws and regulations already on the books. As Washington columnist Robert Samuelson said in Newsweek just last week, (quote) "The huge regulatory enterprise now has so much inertia that it can do much harm."

He went on to point out the economic harm that can be done when regulations overrun a point of reasonable return: (quote) "Cleaner air or safer cars aren't free. When the social gains from regulation are large, these costs are worth bearing. But if the gains are puny, then the costs are punitive and perverse."

If you want to see a living laboratory for the cause/effect relationships he's talking about, you don't have to look any farther than the state where we are holding this meeting.

As everyone knows, California has for many years favored a very aggressive regulatory posture -- especially on the environment. Any complaints from the business community that this course could choke off economic growth were pretty much drowned out.

And why should any one have listened? California's economy seemed to be immune to the down cycles that hit the rest of the nation. Growth was a given here.

But in 1990 and '91, as California followed the U.S. into a steep recession, that confidence was shaken pretty badly. As the rest of the nation began to recover, the recession continued here. Businesses began leaving the state. More and more jobs were eliminated before we began to see . . . for the first time . . . a wave of reaction.

We began to see a number of elected officials stand up for the health of the economy.

One such moment came in the 1993 legislative session. Staring into the barrel of a severe recession, a combination of a Republican governor and a Democratic legislature passed several major bills to cut red tape, rationalize permitting processes and reform programs like workers compensation that had gotten out of hand.

It was a very sincere effort to get government off the back of the business sector -- only a first step, but an important one.

And we've seen more evidence, even more recently.

Governor Wilson, just last month, received the California Air Resources Board's State Implementation Plan for achieving compliance with the Clean Air Act. The draft report estimated the plan could cost over $3 billion a year by 2010, and the governor had other data suggesting that was an understatement.

In response, he sent a very strong letter to the Board's Chair, demanding that a thorough independent analysis of its economic impact be done before the plan is sent to the EPA.

Perhaps the most extraordinary example is what happened right here in L.A. -- the area hardest-hit by recession -- a couple of months back.

Through a series of legal actions that I won't try to describe, this area was obliged to bring in the federal government to design a plan to achieve Clean Air Act compliance by 2010.

A task force set up by Mayor Riordan estimated the federal plan would cost the region over 8 billion dollars by the year 2010, and would aggravate unemployment by as much as one and a half percent.

The Mayor went to bat to achieve a better balance of the environment and the economy. He personally persuaded the local Air Board to reject some of the more onerous measures in the federal plan.

It remains to be seen whether the state and federal authorities will accept the more balanced approach of the local officials. But again, it was encouraging to see an elected official take a strong stand for economic growth.

I don't want to overstate the case, however. California is still pursuing regulatory measures that other states would consider excessive -- the mandate for electric vehicles here being just one prominent example.

But all the same, the examples I've mentioned send a very clear signal that people in this state are losing patience with regulatory costs that are "punitive and perverse."

People here now realize that the opposite of economic growth is economic pain.

For once, I wish California would be a model for the nation as whole. I sincerely hope Charlie's reading of the election is right, and I think it is. There will be a prospect for renewed attention to economic matters in Washington, and a new era of reducing excessive regulation of both businesses and individuals.

In trying to underscore economic concerns, I don't mean to suggest that we can ignore environmental concerns.

I've never believed we face an "either-or" choice on these issues. I've always believed we have to, and can, pursue both environmental protection and economic growth.

As I serve on my third major commission on this subject, I am encouraged by the growing agreement among many parties on that point.

But I still worry that some people are paying lip service to that idea . . . and still not really giving enough attention to the economic side of the ledger.

So let me just emphasize one last point here: the inter-relation of economic and environmental well-being is not some kind of chicken-and-egg puzzle. It's very clear which comes first.

Economic growth is a pre-requisite for environmental improvement. We've seen that all over the world.

No nation -- not even the United States -- is so rich that it can continue to impose huge costs on its industrial sector to purchase minimal gains in environmental quality.

No underdeveloped nation can take the important first steps in preserving their environment until they obtain a minimum level of economic growth.

The petroleum industry has to keep getting this message out, and the API is an important channel to do it. We need to continue to link our efforts to other trade groups, other industries, so that the focus in Washington doesn't lose sight of economic well being.

Obviously, ours is a very diverse industry -- thousands of companies offering hundreds of products and services. In this diversity, we sometimes find one segment at cross purposes with another.

But if there is one thing we all can support . . . and must support . . . it is the basic requirement of economic growth, so that all segments of our nation can look towards a successful future.

Updated: November 1994