Transcription
Interviewer: Talk about the sort of the energy revolution that has been happening in the United States how significant is the increase in US energy production to certain geopolitical…
Guest: It's very significant. It's one of the most important and happy surprises we've had in energy. You know energy can deal you lots of unpleasant surprises and twists and turns but this shale oil boom and the shale gas boom has been a welcome and unexpected [00:30] boom to our economy. It enabled us to stop the climb in our imports up to around 60% of consumption; we are now down to 30% supporting hundreds of thousands of jobs. Arguably, its one of the only good things that has happened in our economy in the last 8 - 10 years, so I think it’s an unambiguous good thing. It’s provided the world with a diverse and safe source [1:00] of oil and gas, and also policy makers in the United States responded admirably and uncommonly in a bi-partisan fashion by liberalising the export rules. So policy makers responded to it fairly responsibly, there were some talk of trying to ban fracking, but to their credit, there has been certainly more [1:30] regulation as were needed to be, but we've liberalised the exports of both shale gas and shale oil and that has provided an energy security benefit to ourselves and our allies, so whether you look at it from an energy perspective, an economic perspective or a security perspective shale oil boom has been a blessing.
Interviewer: Why was there a ban on exporting oil…
Guest: Well the ban on oil exports accompanied the [2:00] ban on oil exports accompanied the ban on gasoline and other refined product exports and the ban on gas exports when we were banning the exports of everything in the 1970s, We were going through extreme trauma we had shifted from where we had been more or less self sufficient, very small percent of our imports, we were more or less self sufficient, only about 10% of our imports [2:30] We only imported about 10% of our oil needs up onto the early 1970s and so we were going through shock and trauma the price increase, the sense of dependency on OPEC and we were starting to bring on our own oil supplies especially in new oil fields on the north slope and so as part of also price controls, in the 1970s we had price controls and had we regulated the prices here but allowed exports, of course oil would have been exported abroad [3:00] The export ban on crude oil primarily was put in place by congress to compliment the price controls that were put in place in the 1970s. By the early 1980s we realized price controls were a mistake, so we lifted the ban on exporting refined products; gasoline and disolet. We also lifted the ban on exporting gas, but we forgot to lift the ban on exporting crude oil. Now nobody really thought about it because until the shale oil boom in the last 5-7 years, the idea of exporting crude oil was absurd.[3:30] There was no crude to export we were seeing our production more or less decline our imports were rising and so it didn’t come about. It was only when we discovered we had this enormous shale oil resources and our production went from 5 to almost 10 million barrels a day, especially of a type of crude that our domestic refineries were not suited to process. So, the kind of crude that we found, the shale oil is particularly suited [4:00] to export. So it was only because of that why we dusted off the old laws and realised we had this artefact from the 1970s that no one had remembered to fix.
Interviewer: So we’ll talked about the global repercussions of the fracking in a minute but before we move on from the domestic side can we talk a little about the environmental consequences of fracking do the geopolitical benefits outweigh the environmental risks? [4:30]
Guest: Well there’s a vibrant debate, as you can imagine over the environmental implications of shale oil and shale gas production. What concerns the public the most, if you look at the polls, and Gallup polls every single year for 20 years, and they ask the public what is your top environmental concerns; The top and often the second and the third, the top concerns have to do with water; the cleanliness of water, the security of water, water contamination. So what would have made the shale oil [5:00] boom impossible, would have been, had there been any threat to water supply, whether it was through hydraulic fracturing or the treatment of the water that comes back out of fracturing, had there been any risk to water supply that would have been a big problem for the industry but you know we have been fracking in the United States since the late 1940s. It’s only taken off with a vertical well, horizontal wells and advance size making and so forth [5:30] in the last 5-6 years but we’ve been doing this for a long time, in over 20 states and there hasn’t never been a case of drinking water contamination from hydraulic fracture. So that I think was the top threat to shale oil boom because had that problem emerged you would have seen I think policy makers on both sides of the aisle say, ‘wait a minute hold on we gotta wait here.’ The public will not tolerate risks to drinking water. So far there hasn’t been any problem there no one has alleged that to my [6:00] knowledge.
Interviewer: You have seen news reports of people that think there water aren’t fine…
Guest: Well there was a amateurish, cartoonish attempt by some film makers to try and draw a link between hydraulic fracturing and methane coming out of spigots of sinks and that’s the famous gas lands movie where they light the water coming out of the sink but that has been thoroughly rebuked not only by oil industries and their supporters but even folks in the middle and on the left. [6:30] That Methane, natural gas can creep into a water pipes and water supplies from just regular oil production or just sinking a water well into a Methane pocket. So that was a, that’s almost an except that proves a rule that there hasn’t been a serious allegation of drinking water contamination, and that gas lands thing kind of went up and then went away and you haven’t really heard much about it. Believe me, if there was a real reason to believe that fracking was endangering water you would have heard about it by now. There would have been plenty of people beyond [7:00] the gas lands movie talking about it and the hazards. But then we get into other concerns such as seismic events and whether not fracking it say, but it is the injection of the waste water that comes back from fracking, whether that injection of waste water doesn’t cause seismic events, and you’ve seen reports of that and that is a concern. That may lead to and has lead to regulations and restrictions on when and how you can inject waste water and so forth. So that’s only what bothers [7:30] the public and has been a concern. Now then you get into the broader Global Warming debate and you have some environmental activist who believe we should not be producing a hydro carb we should “leave it in the ground” and from that perspective shale oil and gas boom has been a disaster for them again our shale oil production has exploded and our total oil production almost doubled and so this is a big concern and our gas as well. Now, I [8:00] think you see though a healthy debate and we see this in the election cycle even in the democratic party where you had Bernie Saunders advocating for a ban on fracking and Hilary Clinton a more moderate sort of regulate it but let it go on and that has more or less been the Obama Administration stance as well. Of course on the Republican side you have more support for hydro carbon production in general including shale oil. But we’re gonna have a debate over it because I think the environmental community, parts of the environmental community are frustrated [8:30] that we haven’t been able to put a price on carbon, they haven’t been able to put a price on carbon or otherwise regulate green house gases, they were able to help stop the keystone pipe line but that’s now water under the bridge and hydraulic fracturing is going to remain I think in the cross hairs of the broader environmental debate over global warming. Just because it involves the huge amount of oil and gas production.
Interviewer: Does it hurt investment [9:00] in renewables as well?
Guest: Well, yes and no, I mean all the shale gas that we found has helped hurt coal, the returning investment from coal. Coal plants are shutting down I don’t think so much because of environmental regulations which are still being litigated in Courts and sort of being implemented in a slow and uncertain fashion but what has happened very quickly and very severely is gas prices have fallen from [9:30] $15 per mmbtu you know 12, 13 years ago to a few dollars per mmbtu. This has been devastating for coal and has coal goes down of course this helps all our renewables. However, renewables are also hurt by competitive gas prices. So, the low gas has had sort of both positive and negative impacts on renewable power. Gas though is essential for renewables because the problem with renewable energy, one of the problems is intermittency, [10:00] it’s not always sunny and its not always windy and we really haven’t cracked the code in terms of energy storage yet. So when you build a wind mill, wind mill park or solar facility you often need natural gas fired generation to backstop that renewable power so net net net I think its clear that natural gas is a friend to renewables.
Interviewer: So let’s move on to sort of the global implication of what’s happened her [10:30] largely it seems what happen here in America, the Saudis are they able to manipulate oil prices, have they been manipulating oil prices?
Guest: Now be careful what you ask for because, I’m just about to finish a book on the coming USE press about this, I can go on as long as you want, but the bottom line is Saudi Arabia and OPEC haven’t had much impact on oil supply, [11:00] oil prices since 2007, 2008. Saudi Arabia has abdicated the roles of swing supplier in the global oil market this is one of the most important and under appreciated changes in energy in recent years in my view and will have the most important implications for our economy even national security and certainly energy prices going forward. You have to remember that [11:30] since the first wells were dug in 1859, oil prices, the industries now tend towards wild booms and bust swings. The reason is supply and demand for oil are what they call in elastic, economist say in elastic they don’t really respond to price changes so when you have supply and demand imbalanced [12:00] when you have supply and demand unbalanced you see wide swings. These wide swings in prices have been a real problem for the oil industry since the first day. They afflicted Rockerfeller who started with standard oil, so throughout history you have seen oil companies and then officials attempt to suppress the natural boom bust cycles that oil prices go through by regulating supply. Standard oil did this in the late 1800s and early 1900s. Then the United States, people forget that the United States [12:30] was the mother of OPEC, the United States Texas railroad company and other US oil states along with the 7 sisters firmly regulated supply of oil from the early 1930s to the early 1970s and they were very successful at keeping oil prices stable but they did that by ordering companies who were agreeing to cut back production when there was too much oil on the market. It took a lot of discipline matter of fact in Texas and Louisiana in 1932 the governors had to declare marshal law [13:00] and send troops into the field to shut off wells. But they did this because both industry and governments could not accept the wild boom bust oil prices that would occur when there was no supply control. Cause remember by world war one oil was becoming, was transitioning to becoming the life blood of modern civilisation. If electricity is literally the circuitry without which modern life is impossible, oil is the life blood, an essential vital commodity, essential for defense, economic [13:30] growth, food supply, petro chemicals etc. So, both oil industry and governments could not accept the wild oil prices swings that we would see when there was no one in control. Now OPEC took over in the 1970s and literally tried to copy what the US had done but never did it as well OPEC’s control of oil supply and their ability to influence prices was never as great as the United States’s was. However, the Saudi’s did exercise firm control in the early 1980s [14:00] and by cutting production, but they said after doing that they’d never do it again, they didn’t enjoy it, they lost market share to there competitors and you know they really don’t get along well with many of there competitors, and so when the Chinese boom came along in demand 10 years ago and when shale oil came along, the oil market needed somebody, some producer to step up and stabilize prices, first by being able to increase production strongly, that was about 10 years ago when Chinese demand emerged and then [14:30] after 2014 by cutting production. We needed a swing producer, in the past Texas was the swing producer, in the early 1980s Saudi Arabia was the swing producer, well starting around 2006, 2007, the world needed a swing producer and there wasn’t one. The Saudi’s who had played that role in the early 1980s had not been investing in enough production capacity and as we saw as oil prices went over $140 in the middle of 2008, [15:00] they were unable to put a cap into oil prices. And then after 2014 when partly due to the US shale oil boom we had excess supply in the market, the price collapsed from $114 the summer before, in the summer of 2014 to little over $40 in January of 2015, $60 in six months, without a war, without an economic collapse [15:30] that is only because Saudi Arabia refuse to play a swing producer role. So Saudi Arabia has told the world and now it’s clear the world is listening. But we are not going to put a cap on prices and we are not going to put a floor on prices. So that means for the first time since the early 1930s we’ve entered a prolonged era of boom and bust prices. And we are gonna find that we enjoy it no more than the governments and the industries did back [16:00] then, because oil price volatility is a problem for everybody, whether you produce oil, you consume oil, whether you produce renewables and alternatives to oil or not, that wild price swings destabilise economies, they make life very difficult for central banks, they destabilise countries and worry our defense planners they are a severe problem for everybody but very good hedge funds and storage owners they like it but everybody else, oil price volatility is no fun and we are back in a boom bust [16:30] era. So I can get in trouble for saying this but the only thing worse than OPEC stabilising the price for oil, or should I say the only thing worse the OPEC manipulating the oil market, is OPEC not manipulating the oil market, because when no one is controlling supply we go back to what I call sort of space mountain oil prices, wildly gyrating, uncertain and scary.
Interviewer: That’s fasciating and you’re the only guest who has not sort of [17:00] carried the narrative that is going to come out which is that Saudi Arabia has flooded the market to, you know, drive the fracking industry of out business. Why do you think that the narrative has kind of emerged as the …
Guest: Well, we have to remember it is in the mindset of our country, we enjoyed supremacy in the global oil market until the late 1960s early 1970s so in our muscle memory we think of ourselves as not only [17:30] a great producer, the first and biggest producer, but the stabiliser of oil prices and we didn’t enjoy it in the 1970s when these OPEC countries came along and kicked us out and not only nationalised our companies and deprived us of that power but then started imposing these price increases on us, so we have a little muscle memory of competition and being dethroned that we don’t like. Also, and I know this from having worked in the [18:00] White House there’s nothing that terrifies, an elected official in the United States more than rising gasoline prices and the gas lines in the 1970s and President Carter wearing his cardigan sweater and so fort stands as nightmares, for elected officials of whatever party and so the idea that these OPEC countries are calling the price at the pump of gasoline, probably the most important price in the entire US economy , which everyone talks about and when its rising everyone gets furious [18:30] about. This vulnerability does not sit well with us, so when the shale oil boom came along I think there’s a tendency for some folks to think that because, just because we were producing a lot more oil it would somehow mean gasoline prices would be low and stable but this was always false the oil market is a global market and the price of oil is set in the global market as a result of global supply and demand for oil. And what matters in terms of [19:00] having stable prices that we all can enjoy when were pumping up or filling up, what matters is not how much you are producing but whether there is supply control, whether supply and demand are in balance or not and that we sort of lost track of, so I think after the shale oil boom came along we had hope that this would give us a kind of stable and comfortable prices and now that to some degree the narrative is true I mean the Saudi’s they increase production a little bit and in some way they are [19:30] trying to drive US shale oil out of the market but there is a misunderstood part of this. The Saudi’s love shale, they don’t want to kill shale, they don’t want shale to go away, they think of shale because shale oil is relatively quicker than normal oil, lets use some metrics here, a typical new oil field by the time you look for it, you find it, you develop it, you produce it, 5, 7 years and again once you start it, you don’t stop it [20:00] and if you really need it you can’t turn it on like a switch, this has been one of the problems in the oil industry from the very beginning supply doesn’t come on fast and you don’t turn it off once it come on. This is what has made oil prices so volatile. Now this OPEC spare capacity and before that Texas that was oil supplies the officials could manipulate within weeks, so they compensated for the fact that normal oil was on a 10 years or 5year or 7 year time frame with this really quick oil you could turn a spigot with [20:30] Shale oil comes along and shale oil is not Saudi it’s not spare capacity but its available in a year or months or quarter so it’s a little faster than the regular oil so shale oil because it is relatively faster to develop, it can help stablise oil prices. So the Saudi officials say publicly, and I believe they mean it in there hearts, they welcome shale because they know [21:00] that shale can help stabilise prices when there’s over supply, shale oil supply will go down, which it has, and when the markets get tight as they will in the future, shale oil can respond. So the Saudi’s see shale as part of the solution to these unstable prices the problem is that shale oil has proven to be not as flexible as I think the Saudi’s and many others hoped.
Interviewer: That’s great, [21:30] is self sufficiency a goal in US energy production right now?
Guest: It is, but it shouldn’t be, it is, I will say this in camera you can put it in if you want, when I was working in the white house and we would have to read the president’s speeches for President Bush, George W. Bush, and I would read in his speech where he would call for energy independence and getting off of oil, which has been enormously popular since President Nixon said it, it was a top vote getter, top applause line in his speech [22:00] was we’re gonna be energy independent, we’re gonna be self sufficient. I would always cross it out and say this is neither a practical nor even a desirable goal for policy, I was usually over ruled and I won’t say by who but they went back in he said it and it was the loudest applause line. Again, what American public and American industry care about most is the price of oil not how much we import. Our imports of oil started soaring [22:30] in the 1990s, while Americas were getting into SUVs ok, huge clunky cars and price of oil went down to a dollar a gallon in the late 1990s. Did we hear an uproar then? We did not. As long as the price of gasoline is stable most people don’t care how much we import. The only time we really seem to focus on our imports is when the price is going up and so I think it’s really first of all the price of oil that is our main concern politically and economically.[23:00] However this notion, this idea of self sufficiency, persists and I think there’s a sense that we would be invulnerable to blackmail, we didn’t enjoy the Arab Oil Embargo of 1973, and we would be invulnerable to sort of mayhem from abroad, wars and disruptions affecting our economy if we somehow didn’t import. But what that view misses again is the fact that oil is a fungible and widely traded commodity, [23:30] where disruptions anywhere in the global oil market transmit a price spike everywhere, including here. So there’s no escaping what we really are most terrified of and that is gasoline price spikes by becoming self sufficient. You can look at a country like Canada or Norway and look at their gasoline prices, these are countries that export oil, they have more than they need, they don’t import a drop, yet their pump prices [24:00] follow everybody else’s along with the price of crude oil. So self sufficiency has been out there and probably always will be but I think serious energy experts don’t think too much of it as a policy goal. And I think if we were to achieve it, like the dog that caught the car we’d find that it’s not as satisfying as we thought.
Interviewer: So we are set to overtake Russia in natural gas production sometime soon is that an important milestone and [24:30] what changes…
Guest: Well Russia still has the world’s largest reserves, our production has been rising strongly due to shale oil and we are becoming one of the top producers and so I don’t think it our production of gas per say that threatens Russia or that is a problem for Russia, it’s whether we allow ourselves to export it and whether Europe, in some degree Asia import our gas right [25:00] because for Russia their like a one trick pony all they have is hydrocarbons and weapons so for them its selling oil and gas to Europe primarily and what poses an economic and strategic threat to Russia is if we are able to export our gas to Europe and weaken Europe’s dependence on Russia. We’ve already been doing that, you know, 10-15 years ago when I was in the White House we all thought we were gonna become almost dependent on the middle eastern gas as we were becoming in oil [25:30] and we were getting ready to import gas from Qatar, when the shale gas boom came along we were able to say no to that gas, we said to the rest of the world, you know what take that gas and send it up to Europe we’ve got all we want here. Matter of fact we’re gonna turn around all the facilities that we had been planning to use to import gas and we’re gonna be able to export gas. So this led to sort of a gas glut in [26:00] Europe. The Europeans were able to turn around to the Russians and saying guess what we’ve got all the supplies coming in from the water we want you to weaken your prices and Russia has had to lower their price and sort of liberalise their prices a little bit and so how much Russia have been able to impose on the Europeans in terms of pricing has been weakened because of just first of all the United States not becoming a bigger importer that was phase one, and now as I said with commendable bi-partisan support for exports, even though major exports [26:30] haven’t started yet. Just the fact that we’re going to be able to do this, the law allows it and it’s politically sort of agreeable to do this, it is sort of bucking up our allies in Western Europe and Japan because we are offering an alternative supply source to Russia. And at the first instance that at least begins to weaken Russia’s pricing power on gas and at most it offers a sort of strategic reassurance for those countries as well, so Poland and other countries can be importing liquefied natural gas from the United States [27:00] which 20 years ago was unthinkable.
Interviewer: With Saudi Arabia … are abdicating the role as swing producer is that a role that the United States could be prepared to play again should we be…
Guest: Many people thought that once it became clear that to must people at the end of 2014 that Saudi Arabia was really going to abdicate the role as swing producer, and you have to remember this is hard for people to accept and believe but once they did, [27:30] hopes then shifted to shale oil doing it and there was hope that oil prices would perhaps only fall to $80 and shale oil would decline fast enough to put a floor on the prices there, that is not proven to be the case. Shale oil riggs have fallen but the producers have become so efficient with the riggs they have that you know production has fallen by much less, and so we’ve learned that shale oil companies are not going to replace OPEC and they [28:00] really couldn’t cause remember shale oil is produced by hundreds of companies who even if they could agree to co-operate, to restrain supply to hold up price, that would be illegal, that would be taken into court. So it’s very different than Saudi Arabia, where the energy minister picks up a phone, and gives an order to the state oil company, ARAMCO, and that order is implemented in weeks, wells are shut off in weeks, that is what supply control [28:30] has meant. Back in the old days when United States was OPEC, again the Texas Railroad Commission, met every month and assigned quotas well by wells to producers in Texas, month by month for forty years, OPEC only meets a couple times a year and everybody ignores their quotas. We had strictly enforced quotas every month, ok, those are the lengths you need to go to control supply. Shale oil is a far cry from that, [29:00] producers will respond to prices and centres and perceived prices and so forth, shale is flexible we have shale’s down almost a million barrels a day, since it all began, it is responding but, it’s not as fast as that spigot turning which is what OPEC used to control and before that, the United States. So, in short, shale oil cannot replace OPEC as the short term swing supplier, and even if it could, it would be illegal we would have [29:30] to revive laws or re-impose controls on wells, now some people say, well, if OPEC can’t control oil prices and the shale oil companies aren’t gonna do it sort of naturally and oil price volatility is gonna wreck our economy, we gotta do something. So, maybe the Texas Railroad Commission which still exists is to revive those authorities dust them off and start giving orders to shale oil companies. Here’s why I think that won’t work; When the Texas Railroad [30:01] Commission was regulating supply back in the day, that was supplied from very cheap wells, they were low cost wells where you were basically sticking a straw in the ground, it was natural pressure pushing that oil up, so you were withholding some of the lower cost supply so you reduce the economic cost of the policy. Right now, shale oil production by contrast is more like a manufacturing process, it is much higher cost production than [30:30] the wells were back in the day, so if the authorities started coming in and telling companies drilling in the Permian and the Bacan you can produce so much this month and so much that month, I think you’d see a big reduction in overall investment, because those frack crews, those disposal wells, those service companies all of those folks rely on such a steady flow of business, if they don’t have it, it’s uncertain if it will go away, that manufacturing system [30:00] will be dismantled and so I think its impractical to think that the United States will go back to the old days, the oil states when they were regulating oil supplies to stabilise prices. I think we’re gonna have to find other mechanisms, to either insulate ourselves from oil price volatility or manage it.
Interviewer: Just a few questions left then we’ll shift back a little bit to some of the environmental side of things. If we stick with the current energy status quo especially [31:30] you know seeing natural gas become more and more prominent, is that enough to try and stave off climate change? Or let’s say not necessarily climate change but like a sort of disastrous global consequences…
Guest: Well, let me think, that’s a complicated topic, let me say this, I think our leading experts, energy experts, [32:00] who do these long run projections of energy supply and demand and the composition of energy sources, they are very concerned that on present track and even if we were to tighten our environmental regulations, significantly on present track, the pace of hydrocarbon development worries them, and that if you look into the IEA’s and other expert projections basically [32:30] over the next three decades or so they see demand for energy going up by roughly a half, 50%, almost all of that in the developing world, in Asia, Middle East, African and Latin America and particularly Asia. Fast urbanizing, fast industrializing, swiftly mobilizing. 80% or so, 75-80% of that demand growth is going to be [33:00] they say hydrocarbons, meaning oil, gas and coal. And so they have sounded an alarm that they are telling folks in the environmental community, we are not on a good path. This is why I think you see in the environmental community, many folks say that we have to tighten regulations because and impose more severe restriction on hydrocarbons or leave the hydrocarbons in the ground, because on present track the policy makers, environmentalists are concerned that we’re not [33:30] on track to stabilise emissions in the atmosphere at safe levels. So I would say it’s a very very big concern for those folks, are there other folks who aren’t as concerned about the catastrophic consequences of Global Warming, so there’s a debate about how much we can really know about modelling and atmospheric composition of greenhouse gases and what affects that and so forth so there’s a healthy debate about that but I would say that its fair to say [34:00] that the experts, the international energy agency and others are worried that we’re not on a sustainable path.
Interviewer: Do you think, they might upset the global buyer that needs to happen in order to produce a real change on this, so barring some technological invasion is it totally inevitable at this point?
Guest: I think so, if the folks who say we’re on the path, of catastrophically interfering with the climate, [34:30] are correct, then I’m afraid, we’re doomed. Because there’s very little about political science or the history of marshalling public support to accept short term pay for long term gain that makes me think we will ward it off, and I [35:00] ask you just to consider for a moment by contrast the problem of unfunded health and security liability, social security and Medicare, no sane person would deny that we have an enormous gap in terms of the unfunded social security Medicare commitments like climate change it’s a slowly developing problem that poses enormous risk but unlike climate change these fiscal problems where [35:30] caused entirely by government action, the can be solved entirely by government action, congress could fix it, procedurally it would take about an afternoon, and the skills required, require about an 11 year old’s capability of algebra, so if governments - yet look in the campaign we’re in now, there’s no talk of fixing it. So, if we can’t address, a relatively easy that no one denies looms over the horizon, [36:00] a major treat to our economy even our political stability, that affects our seniors and our young folks, if we can’t fix that, what makes anybody think that we are gonna be able to organize the world, to restrain energy production, to avoid potentially disastrous global warming, so mark me down as a pessimist in term of getting global buying, when I see elected officials fix the fiscal problems, [36:30] I’ll become more confident that they can address problems like global warming.
Interviewer: Yeah that’s a pretty reasonable answer. Just a couple more, what should US policy makers be focused on in the next 5 years in the energy…
Guest: I think the most important challenges are resisting delusion, resisting the idea that because [37:00] oil production is now closer to 9 million barrels than 5 because our oil imports are closer to 1/3 than 2/3 of our supply because we have the shale oil boom that we can forget about the middle east, forget about the rest of the world that we have no reason to engage, if you look at most forecast by the department of energy, by the international energy agency and others, they show OPEC share of global supply growing in the coming decades and as I said before [37:30] what really matters is the price and that’s gonna be shaped by what happens abroad. So the world is about to become more dependent on OPEC in the middle east than it has been in the last decades we will remain vulnerable to the developments in the oil market and disruptions so we have a stake in stability in the middle east and so forth, so I just hope and I think its gonna be to resist the sort of tendency to think that we can just come home ignore for the rest of the world, [38:00] and stick to our own knitting when it comes to foreign policy. You know there’s the Carter doctrine which basically says the United States will not allow an outside hostile power to dominate the Persian Gulf and the Reagan Corollary too which says we also won’t allow a Persian Gulf nation that’s hostile to dominate and we may not think well, we don’t need to worry about that anymore because we have all the oil we need I think that’s a mistake, I think we’ll learn that’s a mistake and I think the Carter doctrine and the Reagan Corollary [38:30] are gonna be more important in the coming decades than they were in the last few decades and remember this, as the middle east share of oil production grows and oil prices most people expect and we would agree are gonna be higher going forward. That means more revenue going to those countries and in a globalised inter-connected, inter-dependent world, we need to care about how those revenues are used. So, the first thing, first step avoid real isolationism, avoid energy artaki get real and [39:00] keep it real, secondly we have to get to a better place on climate change, we have driven ourselves into a ditch in the last few years and I think that nobody is satisfied where we are the environmentalist, the industry, folks in between, we have folks on one hand who denies there’s even a risk, and then we have others who say we have to stop all energy production and keep it in the ground. I think we need to stop digging and climb out of the hole we put ourselves into, we even the environmentalist think [39:30] we would recognize that our attempts to regulate greenhouse gases under the laws – like the clean air act, that were not intended for greenhouse gases is at best a second best solution and should be replaced by a more thoughtful policy that’s developed with the support of congress. So hopefully we will stop sort of digging, agree to stop politicising even routine energy infrastructure that we need to keep our energy system working and keep things safe really, not allowing pipe lines to be permitted [40:00] for the sake of global warming is absurd, ignoring climate change is also absurd. So we need to kind of cut it out, back up a little bit and re-engage in a more thoughtful way and hopefully a more deliberate way on climate change. I think that will remove alot of uncertainty that’s afflicting the industry, because before you make a long term investment in gas development or solar or oil, you kinda wanna know what the cost is gonna be, what’s the regulation [40:30] gonna be and I think we would do ourselves a favour since we are talking about the life blood of modern civilisation here and of electricity the circuitry, the nervous system of our economy and the lifeblood of our transportation. The least we can do is have a more sane deliberate policy on global warming and greenhouse gases going forward.
Interviewer: Robert McNally thank you for joining us.
Interviewer #2: I’d just like to jump in and ask just a few questions on some of your travel pursuits what you’ve … [41:00] very interesting, I’d like to revisit Saudi Arabia and you can just Look straight at Damon, considering that you were talking about Saudi Arabia being able to balance out supply and demand, how does that fit into vision 2030 and being able to transition their economy…
Guest: Well I think vision 2030 and the goal of transitioning Saudi Arabia into a more market based value [41:30] added economy where its not just depending on oil sale revenue to power the whole economy but instead adding value adding more refinement, adding petrochemicals, developing other industries. That vision we have to remember, that has come around before, that typically happens when we have price collapses we saw something similar in the late 1990s when oil prices fell to $10 a barrel and so one thing that will be interesting to see is what happens in the vision 2030 if and when oil prices [42:00] go up and will the pressure be off, to go through these sort of restructurings. We hope, most people hope they will continue with it because there are many progressive and sound ideas being talked about there. However, I think the Saudi abdication of the swing supplier role fits well with the 2030 vision, in the old days Saudi Arabia derived its importance, its stature from being the guarantor [42:30] of price stability in the oil market. That’s why Presidents will call, Kings would beckon, that’s why the Saudi’s were so important. They’re saying we’re not gonna do that anymore, we have given up that role so we need to find a new way to be important and to see to the welfare of our citizens. So I think the abdication of the swing supplier role, leads and fits well into this vision of 2030. We’ll see how well the vision 2030 survives again, the next oil price spike. I [43:00] don’t think the Saudi’s will want to get back in the business of stabilising the oil price so I think that’s gone either way, but I think it is complimentary. There was one other thing I wanted to say – we have to remember this, while we’ve seen it in the past, these attempts to restructure ad liberalise oil price down turns, this time its being strongly pushed by the deputy crown prince Mohammed Bin Salman and what’s very interested about him, he’s in his early 30s, so for most of his adult life [43:30] he doesn’t really know of Saudi Arabia being the swing producer or the guarantor of stability, he doesn’t, the folks who are older, his father, his grandfather, and other folks they would know about it, Minister Naimi who just retired, started in 1948, they remember the time when Saudi Arabia’s power and stature came from stabilising the price of oil from being the largest exporter and the price stabiliser, the holder of spare capacity. The young Mohammed Bin Salman [44:00] has no life experience of that, so it’s not surprising that he has been able to easily sort of accept, we’re not doing that anymore we’re not gonna play that role anymore, instead we’re gonna move on to this ambitious, this accelerated transformation program in Saudi Arabia, so I think the fit together pretty well.
Interviewer #2: One final question as we come to ask you one thing about China, we were discussing US engagement abroad … so I’d like to actually transition to maybe a Chinese perspective, [44:30] considering the events in the south east China sea, do you think that might be China securing their own energy future, in terms of securing …, exercising their right to look for oil and natural resources…
Guest: Yes that’s a great question; I think when we look at China in away we look at ourselves, in terms of our adjustment to becoming a major oil importer from the Middle East. Again, we had to go through shock and [45:00] trauma, in the 1970s as this occurred, we have to remember how deeply unsettling it is for leadership of a major country which had been more or less self sufficient in oil and energy to suddenly realise that your economic stability and your national security depend on the flow of liquid fuel from the unstable middle east over long oceans to your ports. That send people into, you go for counselling [45:30] for stuff like that. China is just going through what we went through in the 1970s, and they have the same concerns and are pursuing the same policies that we did to deal with it. Establishing political alliances and strengthening them with countries in the Middle East, building military capability to protect your sea lands, your supply lands between the middle east and the home ports. Also [46:00] fewer economy regulations and developing alternate fuels – the whole bag of tricks, that we have been using furiously since the 1970s, the Chinese are doing the same thing cause they’re going through the same trauma that we are, if you look at most oil market forecast, China and for that matter India, they’re expected to see oil imports rise to 80 or 90% of total supply. Imagine that, we didn’t get much higher than roughly 2/3, [46:30] and now we’re down. They don’t have as much oil, unless they find a lot of oil in China or India they’re on the path to becoming much more dependent than we ever were. And so it’s not surprising we see China behaving this way, they’re building up inventories, what we need to do, is encourage China to take a more benevolent, a high road towards energy security, we shouldn’t shut them out of investing in oil supplies around the world, it’s good that China becomes, [47:00] feels more secure in its energy supply. So we should encourage China to build and use strategic stocks and to co-ordinate with us and other countries in their use, we should share technology with them, we should do, we should share the lessons we learned in trying to mitigate the consequences of increased oil dependence and vulnerability to price shocks with the Chinese, we have an interest in that because we don’t want them feeling insecure cause then they will behave in bellicose and belligerent ways which is what we’re seeing in the south China sea. [47:30] The south China sea although there is not a lot of active oil and gas production right now, there’s thought to be enormous resources there and more importantly it is the main channel through which those hydrocarbons gas, liquefied natural gas and oil flow from the Middle East into Asia, all passes through there, so its an enormously important transit point and there’s enormous resources there. And we’re seeing unfortunately some of this belligerent Chinese behaviour, I think it’s understandable, given there energy concerns, [48:00] I know there’s also nationalistic questions as well, but I think we have to both resist that and retain the ability to operate in those areas and to prevent and adversary from ejecting us from those key sea lands, that has to be part of our national security policy as I said going back, we can’t afford to pull out and let those guys in the south China sea just sort of deal with China on their own thinking – you’re on your own we’ve got our own energy, that would be a mistake, but we also should try to be as [48:30] co-operative as we can with China and help them take the high road towards managing their oil import dependency.