The availability of energy will be the single most important factor in determining quality of life in the United States over the next century. Jobs, manufacturing output, transportation, and personal comfort are all tied to a plentiful, affordable energy supply. A secure supply of reasonably priced energy is a prerequisite to U.S. strength in the global marketplace. The petroleum industry has played a major role in meeting energy needs in this century. Currently, oil and gas account for two-thirds of the total U.S. energy consumption and 97% of transportation fuels. Petroleum will continue to be a major factor in the energy needs of the world well into the next century as consumption will continue to increase despite energy efficiency improvements. This growing energy demand will continue to increase U.S. dependence on petroleum imports that currently account for 54% of the crude oil supply. Imports are projected to increase to 68% by 2015. Already imported crude oil is the largest factor in negative U.S. trade balances. At the same time the concentration of oil supplies in politically unstable regions poses a national security risk.

A major factor in the increase in the import of foreign oil is the combined effect of the declining price of crude oil and the cost of compliance with U.S. environmental regulations resulting in a decrease in domestic oil production in the U.S. An estimated two-thirds of all U.S. oil remains in the ground, much of it located in deep, complex reservoirs or environmentally sensitive areas. The U.S. is a mature oil-producing region of the world; therefore, domestic production is more costly than overseas production. At the same time the relatively high costs of operations and environmental compliance place U.S. producers at a competitive disadvantage with foreign producers. As a result the major oil companies have scaled down their domestic operations and refocused their exploration and production activities on foreign resources. The 8000 independent producers are faced with two options - producing from the domestic resource base or going out of business. At the same time, the independents are increasingly the inheritors of mature fields and reservoirs left behind by the majors. Yet compared to the major producer the independent is more vulnerable to the declining price of oil and gas, the costs of environmental compliance, and unfavorable tax policies. The independent producer has only one source of revenue--the sale of oil and gas. There is no vertical depth to his business. These factors have combined to not only greatly reduce the number of new wells drilled but also to accelerate the plugging of marginal or stripper wells. In the U.S. a stripper well is plugged every 30 minutes, permanently cutting off access to oil and gas resources left in the ground. At the same time new well completions are at a 45-year low.

Clearly this trend is not in the best interest of the U.S. in terms of energy self-sufficiency or national security. We are turning over control of our cost of industrial output or production, in terms of energy costs, to foreign interests. If domestic exploration and production and refining are to continue to play a strategic role in meeting U.S. energy needs, the domestic petroleum producer will require access to low cost technology for waste minimization, pollution prevention, and environmental remediation in exploration and production (E&P), refining, transportation and end use of petroleum. In many cases this technology does not now exist in a cost-effective form.

In recent decades, environmental concerns have led to the imposition of numerous Federal and State regulations on oil and gas operations in the U.S. While these regulations provide the framework for many environmental improvements by the industry, compliance is costly and complex. These costs are increasingly out of proportion with the economic output of the petroleum industry. In 1991, four industry sectors (chemicals, petroleum, pulp and paper, and primary metals) incurred three-fourths of the $21 billion spent by U.S. manufacturers to comply with pollution control regulations. However, these sectors accounted for about one-fifth of U.S. manufacturers' value added (Office of Technology Assessment). Currently, the petroleum industry, including refining, spends as much on environmental protection as it spends searching for new domestic supplies of oil and gas - 9 cents for each gallon of gasoline Americans buy (U.S. Department of Energy). That amounts to $10.6 billion a year. The costs of compliance with environmental regulations places a substantial economic burden on industry. This burden is magnified in the oil and gas industry by the marginal profitability of a large percentage of domestic oil wells. Over two-thirds of domestic oil wells produce, on the average, less than three barrels per day, making them highly sensitive to increasing costs. The time has come to focus on implementing regulations with greater flexibility and efficiency, and achieving optimal levels of environmental protection at the lowest possible costs.

All U.S. industry is caught in the conflict between national economic and environmental goals. Pollution control in the petroleum industry presents regulatory hurdles for U.S. domestic production and refining that producers and refiners in many other countries do not face. This places U.S. producers and refiners at a global competitive disadvantage. The U.S. petroleum industry needs cleaner, more cost-effective technologies and new approaches to lower the costs of complying with pollution and waste disposal regulations that U.S. society demands. A reduction in environmental compliance costs will have the greatest impact on the national economy when applied at this level - the level of the extraction industries. Lower energy costs make all industry more competitive. The petroleum industry and the nation would benefit not only from lower compliance costs, but also from the jobs and commerce preserved in the domestic petroleum industry and the related trade in capital equipment and professional services in industries that service the petroleum industry. New technologies for pollution control and remediation will also be an exportable product.