Hess Calls for Higher Mileage Standards, More Exploration Incentives

Says repeal of oil drilling tax incentives would be a mistake.

HOUSTON -- U.S. energy policy should include efforts to curb oil demand through substantial increases in mileage performance standards and tax policies that encourage more drilling and natural gas exploration, said John Hess, chairman and CEO of Hess Corp., during the CERAWeek energy conference in Houston March 8.

Hess downplayed the role of renewable energy and nuclear power as potential solutions to future energy needs and referred to shale gas exploration as a "real game-changer" for use in electric generation.

He suggested requests for a $1 per gallon gasoline tax for transportation and a $10 per ton carbon tax for electric generation could be implemented but only if other major industrial powers take similar measures.

The United States needs to raise the mileage performance standards far beyond the 35-miles-per-gallon requirement for 2016 to 50 miles per gallon, Hess said.

Plans to cut tax incentives for drilling would be a mistake, Hess said. President Obama has asked Congress to repeal industry tax incentives as part of his budget plan.

Current tax law allows oil companies to expense intangible drilling costs. Eliminating such incentives would decrease domestic supply, negatively impact trade balance and harm energy security, Hess said.

Hess also called for more deepwater-drilling permits in the Gulf of Mexico. Government and industry need to partner on establishing an independent agency to certify and audit best drilling practices in the Gulf, Hess said.

As for natural gas, Hess said production needs to be a priority for electric generation because of lower investment costs and higher efficiency than coal. But proposals for natural gas use in heavy trucks is not ideal because of its low efficiency as a transportation fuel.

Converting 2 million trucks at $60,000 each would cost more than $100 billion, he said.

Additionally, policy efforts should focus on energy efficiency through vehicle mixes that include hybrids and diesel engines and reduced mass and weight, Hess said.

But, he cautioned, the promise of electric-only battery cars only misleads the public. At more than 300 pounds, batteries are too heavy and in most cases carry a low charge of 40 miles per eight hours, he said.

"Electric-only battery cars will serve urban, short-distance driving but will not play a major role over the next 20 years," Hess said.

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