Energy: Delivering to a World without Borders
Houston Forum
Rick Priory
Chairman, President and CEO
Duke Energy
Good afternoon. It’s a pleasure to be with you today. In just three weeks, Duke Energy will mark its third anniversary and it seems fitting to be in Houston, the world’s energy capital, for an early birthday celebration.
We have much to celebrate—as a company and as an industry. Our economy—our “new” economy—is strong. Energy demand is robust. And our world is more connected than ever before. Thanks not only to the Internet, which gets the lion’s share of credit, but also to the growing realization that knowledgeable relationships—between nations, between markets, between buyers and sellers—is the greatest power of all. Relationships, not sledgehammers, are removing the divides of our world and creating unprecedented opportunity.
In the energy industry, there’s been a flurry of new relationships—BP and Amoco, Exxon and Mobil, El Paso and Coastal, Duke Power and Pan Energy. Relationships between energy providers and their customers are evolving too, as deregulation delivers greater choice and new levels of service.
Duke Energy has enjoyed a long and rewarding relationship with Houston. Texas Eastern, which celebrated its 50th anniversary last year, was created by the War Emergency Pipeline Act as a means of transporting oil to the East Coast during World War II. Texas Eastern’s “Big Inch and Little Inch” pipelines were built to move oil. After the war, they were put up for auction and George and Herman Brown won the bid and converted them to natural gas.
The building that houses our Houston operations was constructed by the Brown brothers, and Texas Eastern owned and donated the land where the convention center now sits, aptly named for George R. Brown. So it’s good to be in a city so rich in our history as we approach our third year.
I’d like to talk today about the energy industry. Not the short-term view of the energy industry—Is the price of oil going up or down? Will it be a hot summer or not? Will electric deregulation drive prices up or down?
Not that view—but a broader, bigger-picture perspective. And I’d like to reflect on someone else’s birthday to focus us on the future and energy’s important role.
On October 12th of last year, the earth welcomed its six billionth baby. While the United Nations didn’t supply the child’s name, gender or nationality, we can make some educated guesses.
Let’s assume the child is a girl, since female births are outpacing male. Let’s also assume that she was born in Asia or Africa, because population growth, stabilized or declining in developed nations, is rising rapidly in less developed countries. Today, she may or may not have electricity in her home. One-third of the world’s population does not. And chances are, if her home and town lack electricity, she may also be missing the benefits of education, health care—even the basics of adequate food and shelter.
In my mind, that seven-month-old child is the compelling symbol for our industry’s potential. Just as energy has transformed the 20th century, it holds tremendous promise for the 21st. Our industry—gas, oil and electricity—has been the catalyst for raising the standard of living for the past 100 years. The challenge—the opportunity—we share is creating a world in which energy operates without borders. A world in which all people are able to tap what we take for granted here in the U.S.
There are some who look at population trends and that 6 billionth child with alarm and dire projections. Will our resources be able to sustain the world’s growing appetite for energy? Or does our ability to satisfy the growth and needs of this planet dry up somewhere down the road? Do we flip the switch one day—and nothing happens?
I’d like to spend some time addressing those questions today because I am convinced that energy products and services are essential building blocks to a better world. Created from many fuels, electric power is vital to the foundation of any society that hopes to eradicate the ills we see—poverty, ignorance, hunger, disease. Electricity, gas and oil have delivered on their promise to this country—but our work is not yet done.
Our next step, one that many of you have taken boldly, is to energize the rest of the globe with hope, with choices, with opportunity.
Last year, I wrote an essay in a trade publication declaring that no product during the 20th century delivered more to this country than electricity. In 1900, about 3 percent of U.S. homes had electricity. Luckily, others saw the promise in the technology. James Buchanan Duke, one of the founders of Duke Energy, began building hydroelectric dams along the Catawba River in the Carolinas to attract industry to what was then an agriculture region. Elsewhere in the U.S., other companies were doing the same, and soon electricity spread throughout our cities.
During the New Deal in the 1930s, electricity spread to our rural areas—bringing modern convenience to our farmers and efficiency to an early textile industry. At the same time, other pioneers of Duke Energy were building and expanding the natural gas pipeline system of this country—boosting business and bringing warmth to our homes. Throughout the century, energy was the success story that powered our medical breakthroughs and booted up our computer age.
The question remains—can we export and continue that success story elsewhere?
My outlook is more optimistic than the doomsayers. By the time that 6 billionth child turns 5, she’ll need the immunizations that kindergartners in the Western world receive. She’ll need light to learn by, warmth and food to thrive by, and a world that is working to make her future bright. We have much work to do; but we also have the knowledge and motivation to succeed.
Energy consumption in the developing world—Asia, Africa, the Middle East and Central and South America—is expected to more than double by 2020. The President’s Committee of Advisors on Science and Technology suggests that world energy demand will triple by 2050.
To keep up, the world’s energy capacity must grow 400 percent to keep pace with growth—and to replace older, less efficient energy facilities. Ten trillion dollars will be spent on energy technology around the world over the next two decades.
Because of the abundance of natural gas and its lower emissions, natural gas will play a prominent role in responding to world energy growth.
I talked earlier about our connected world. Demand for electricity and investment in power sector infrastructure have spurred the move toward privatization in many parts of the world. And the benefits of natural gas go beyond cost and low emissions. Natural gas will be a catalyst to the economies of developing countries, where major gas supplies are located.
We are entering an era in which the demand for a better standard of living—common comforts such as refrigeration, medical service or the Internet—are becoming a huge global driving force in political, social and technological “mega trends.” And energy is essential to meet that demand.
I’ll give you an example. I recently returned from visiting some of our facilities in Peru. Peru is a country where the average person uses only 5 percent as much electricity as we do in the United States.
I was riding along in a remote village—really not much more than a collection of huts. There was electricity in this area, although not much was being used. One hut appeared to be the local watering hole for the area people. It didn’t have a door to the business—there was only a curtain that blew in the breeze. As I went by I saw the curtain flap open—and inside everyone was gathered around a TV set watching the American show, Frasier,—and in living color!
Now to our point of view, Frasier is just another sitcom—an OK way to spend 30 minutes. But consider that sitcom’s impact on people without the standard of living and technological advantages we enjoy.
Now it becomes a force to fire up the demand for all that energy can deliver. Our high-tech world is no longer some faraway myth to these areas of the globe—it’s staring them in the face every day through the advances of television and other global communications technology.
My second thought was, “How can we meet that demand?” What if the standard of living in Peru was one quarter of the U.S., how could it be done? How can we keep the promise of energy alive for the rest of the world?
We start by tapping into the technology that is making our power plants produce more power with less fuel. Today, natural gas power plants are twice as efficient as they were 10 years ago. General Electric announced that in five years, the next generation of gas turbines will be 30 percent more efficient. Coal-fired power plants are producing more electricity with less coal than ever before—and with fewer emissions.
This type of progress can help feed the steady rise in electricity consumption. But I don’t believe that this squeezing of technology alone will be enough to feed the world’s expected energy growth. We must also be mindful of emerging forms of generating electricity. Perhaps in the next 50 years, we will perfect a way of producing electricity that is cheap, clean and relies very little on our natural resources. But I also know that it takes 20 to 30 years to commercialize a new technology, bringing it from the laboratory to the markets. Remember, Edison perfected his lightbulb around 1880. But 20 years later, only 3 percent of the U.S. had light bulbs in their homes.
So although my heart is optimistic about new forms of energy—my brain must be concerned with what we have at our disposal today. I know that for the next 20 years, we must play the best hand possible with the cards that we have been dealt.
I hold the firm conviction that we must not set aside the nuclear power option as we go forward. Nuclear makes up about 20 percent of this nation’s generation mix—and you could make an argument that the U.S. has deliberately put nuclear power on the shelf. But we did receive welcome news yesterday afternoon: The Nuclear Regulatory Commission unanimously approved a license extension for Duke Power’s Oconee Nuclear Station, extending the plant’s value to our system and customers for an additional 20 years. Despite this good news, I doubt that there will be a new nuclear power plant built in this country during my working career.
One of my first jobs at Duke Energy was helping to design and build our seven nuclear units. That experience cemented my conviction that there is no better way to efficiently produce bulk quantities of electricity using a small amount of natural resources, with very limited impact on the environment.
Remember: if we’re going to triple the output of electric generation in 50 years—if we are going to light the world for the estimated 8 to 12 billion people in 50 years—if we are going to raise the standard of living from Peru to Indonesia—we must use every tool available.
That’s a pretty tall order. And you may be asking, “Who is going to accomplish that? Who is going to bring that power to the people around the world?”
Much of the answer lies right here in Houston. U.S. companies like Duke Energy and others in the Houston area will be the ones who energize the world throughout the 21st century.
U.S. energy companies can bring energy expertise and investment to these countries. This enables us to expand into new markets—markets where annual energy growth is anywhere from 5 to 10 percent. That is what is attracting us to areas like South America, Central America and Asia-Pacific. The growth story beginning in those regions is not unlike the 1950s and 1960s in this country. And the first building block of that growth is energy. Without it, there are no new hospitals, no new manufacturing plants—none of the modern necessities on which developed economies are built—and which satisfy the basic needs and wants of billions of people.
At Duke Energy, we never forget that we are looking at growing markets that will serve the little girl I mentioned earlier—and millions more.
We can deliver the promise of energy to these countries. We can export the brainpower, the capital, and the materials needed to produce electricity as efficiently in Ecuador as we do in North Carolina.
And as we do, we will be helping other business, as well. In many of the countries I’m talking about, the government is steadily turning over power to private enterprise. Many U.S. energy companies entered international markets by participating in auctions run by these countries as they sold off their energy assets.
And as we entered these markets, we brought with us the principles of the free market system. Not only were we exporting power, we were helping to export capitalism. I believe in time these principles will begin to stick and we will open up more free markets for all businesses. There will be bumps along the way, but the free enterprise system has had a pretty good track record in this country—no doubt it can equal that record in other areas of the world.
Now, my board of directors would ask, “Can you make any money doing that?” Money is the great measure of American business success—it’s how we keep score.
The answer to that question is an unqualified “yes.” We are positioned to capture solid earnings growth as the rising standard of living drives continued growth in energy demand.
But to me the energy industry offers something more—a noble mission. My predecessors delivered the promise of electricity to the towns and farms of the Carolinas and gas pipelines across the continent. Bringing light where there was none before; spurring growth and prosperity in areas where there was little of either.
My company has grown from those days—from a small electric company to a global energy concern. Our challenges have gotten bigger, too. I’ve seen first- hand the areas in need of the promise of energy. Energy to bring jobs, to bring medical care, to bring a standard living that until now has only been an image on a television set.
Our 21st century mission is quite simple—and noble: to deliver energy—and all of its associated benefits—to a world without borders. We must deliver on the promise of energy for the 6 billionth child born last year—and for the billions more who will join her.
Thank you.
