2020 Global Energy Forum
The Role of the Oil and Gas Industry in the Energy Transition
Chief Executive Officer, Petroleum and Petrochemicals,
Mubadala Investment Company
Dr. Barbara Burger,
President, Technology Ventures,
Executive Vice President and Chief Commercial Officer,
Cheniere Energy Inc.
Dr. Robert Johnston,
Senior Fellow, Global Energy Center, Atlantic Council; Managing Director, Global Energy and Natural Resources and Executive Advisor, Eurasia Group
Business Emerging Markets Editor and Anchor,
Location: Abu Dhabi, United Arab Emirates
Time: 12:00 p.m. Local
Date: Saturday, January 11, 2020
ANNOUNCER: Ladies and gentlemen, please welcome to the stage Business Emerging Markets Editor and anchor of CNN International John Defterios. (Applause.)
JOHN DEFTERIOS: Good afternoon. Hi. (Applause.) Good morning, and good afternoon as we have the midday here.
That was an interesting presentation from Majid Mufti there on the move by Saudi Aramco here and the investment into the transition for the future. It was interesting to hear Dr. Sultan this morning talking about the roadmap for ADNOC and the carbon capture and storage. But if you think about the cluster that’s available here in the UAE today with ADNOC, the minister of energy, and the ministry itself, MASDAR, Emirates Nuclear Energy and its resources here coming forward with the Barakah nuclear plant, and the rollout of solar and carbon capture and storage already in the pipeline, we have a very clear idea of what’s going to be the transition over the next 50 years. That’s the narrative that we have today in the UAE.
But what happens in the rest of the world? I think we were all a bit alarmed looking at the presentation by Fatih Birol of the International Energy Agency. And if you look at the rise of carbon emissions, unless we have great disruption and investment here in the transition not from oil and gas, but better use of oil and gas, but the demand for coal particularly in Asia, we’re not going to get to where we need to be in the next 30 years in the march to 2050 and the control of emissions, but also climate change which is radical.
But the narrative has changed here in the last 12 months in a substantial way in the debate about the energy transition. And I was thinking back. If I was at Atlantic Council four years ago and I was chairing many of the panels back then, or at the IRENA General Assembly, nobody embraced the energy transition. It wasn’t really recognized. That has completely changed in the last 12 months.
So we know the roadmap here in the UAE for the next 50 years, but what does the role of the UAE outbound, the investment horizon, what’s it investing in in this energy transition? Let’s bring forward the chief executive officer of Mubadala Investment Company in both petroleum and petrochemicals, Musabbeh Al-Kaabi. Let’s give him a warm welcome for a one-on-one interview. (Applause.)
The last time we talked one on one was here at the Atlantic Council, so it’s good to have you back.
MUSABBEH AL-KAABI: Indeed.
MR. DEFTERIOS: We were talking backstage – so we can share this with the audience out front here – when you saw Fatih Birol’s presentation, I think there is an alarm because you see that climb up on CO2 emissions and the demand for coal – the necessity is the way the Asians see it – for coal in power generation. What does that tell you for MIC and what you want to try to invest in to assist in the energy transition that still fosters growth? How do you approach it?
MR. AL-KAABI: Well, yeah, I think the graph that was shown earlier this morning is very interesting. It is clear that the future outlook for the energy consumption, it will require different sources of energy including oil and gas, renewable energy. But it’s also alarming to see that, you know, we aim for something that is very optimistic, but the reality is telling us something different. When it comes to the coal consumption, yes, that is –
MR. DEFTERIOS: It’s shocking, though, isn’t it? Yeah.
MR. AL-KAABI: Shocking numbers. But also, one outcome from the presentation is that there is no such a thing called a single solution. I don’t think that we will have one magic solution that will eradicate the climate change issue and put the global or the world in the right trajectory. It will require collective efforts, collective responsibility to tackle this issue. And I think there are a list, as shown this morning, of many, many emerging trends/technologies that needs everyone’s, you know, commitment in order to achieve what the ultimate goal when it comes to climate change.
MR. DEFTERIOS: For example, Musabbeh, you’re very big into natural gas and in the ASEAN market, which is a very fast-growing market: fields in Thailand, operations being developed in a very sizeable way in Malaysia. The role of natural gas for displacement of coal in Asia, is that a priority? And it can make money in that fast-growing market for MIC?
MR. AL-KAABI: Yeah, we embraced a new strategy when we merged with – between MDC back in 2017 and IPIC. So the new strategy of Mubadala is very clear. We acknowledge the energy transition ahead of us, and we need to position Mubadala and Abu Dhabi in the right track to remain a reliable supplier of energy in the future.
So in one hand we invest a lot in renewable energy. So Masdar is, for example, already invested in projects more than four gigawatt(s) of, you know, power generation. That’s massive for a company here based in the Middle East and, you know, stretching also outside.
When it comes to Southeast Asia, yes, we acknowledge that natural gas will enjoy a more, I would say, or stronger growth versus oil, for example. So renewable energy is at the core of our view of the future. Natural gas, on the other hand, is very important – (inaudible) – in achieving the energy transition going forward.
So as you mentioned, yes, Mubadala Petroleum, Mubadala – one of Mubadala’s, you know, companies – is developing a massive gas discovery in Malaysia, ultimately producing by late 2021 500 SCF – 500 million SCF per day, feeding LNG and helping in the global initiative to replace hopefully – first of all, to meet the growing demand for energy and to replace, hopefully, coal. And also, in Thailand we’re excited to partner with PTT to continue developing the largest gas and condensate field. And here in the Middle East, we are also a key player in the natural gas. So we’re in Egypt, for example, developing –
MR. DEFTERIOS: Which has been extraordinary in terms of the development, right?
MR. AL-KAABI: It is indeed.
MR. DEFTERIOS: But that’s part of the equation, Musabbeh. We don’t have too much time so I want to be getting a few other questions in. But talk about the power of that natural gas to reduce energy poverty. Because Fatih brought up this idea that there’s still 850 million people without access to electricity. They’re not going to be importing fuel anymore, so this is a game-changer for Egypt as an economy of nearly a hundred million people.
MR. AL-KAABI: Indeed it is. And it saved them from importing significant, you know, energy into the country, so become self-sufficient and potentially going to reinstate their position as an exporter of natural gas.
Yes, I think the story of natural gas is very important when you look at the big picture, ensuring that we put the right investment in this sector to fulfill the demand for growing energy demand in the future. So hopefully, in ideal world, the future energy demand will be met by renewable energy. We will put all our efforts – (laughs) – I think globally in, you know, ensuring that we develop the renewable energy –
MR. DEFTERIOS: Out of curiosity, though –
MR. AL-KAABI: – and natural gas.
MR. DEFTERIOS: Well, that’s interesting. Do you leave that to Masdar or do you collaborate with Masdar in the portfolio here on the renewable side?
MR. AL-KAABI: We do it both way, I think, because Masdar is 100 percent owned by Mubadala. But also, we encourage our traditional oil and gas companies to collaborate more and more with Masdar. So during this week, Abu Dhabi Sustainability Week, one of our companies is going to sign an agreement with Masdar to collaborate more and more and try to integrate the renewable energy as part of the future trend of these companies.
MR. DEFTERIOS: Great. ESG – environmental, social, governance – you know, again, the narrative has changed radically, has it not, in the last 12 months.
MR. AL-KAABI: Yeah.
MR. DEFTERIOS: How does it affect your actual decision-making on your partners? The stakes that Mubadala has with the IPIC, assumption of many of those assets, do you go in and say this doesn’t work for us in this new environment in the transition, or not?
MR. AL-KAABI: I think we’re a responsible investor, to start with. So Mubadala has, you know, done a lot when it comes to the ESG. We just established a committee last year and I’m part of that committee. So in the future we will look at all our investments, ensure that they are ESG compliant, and you know, take into account also the global investment of Mubadala.
As I mentioned earlier, we’re not only in the oil and gas but we are a big – you know, an active investor in the renewable energy, and we’re doing a lot also in the technology side. So there are many potential, you know, promising disruptive technologies that could also work in favor of a smoother energy transition in the future.
MR. DEFTERIOS: Dr. Sultan Al Jaber at the opening of ADIPEC said, look, we shouldn’t look at this transition as a burden; a responsibility, yes. But from what – your point here, Musabbeh, which is very interesting, the ability for AI to do better reservoir management – AI and the other technologies to capture carbon and observe the methane coming out of the ground – do you invest in these technologies to bring them into the value chain in all your companies as well?
MR. AL-KAABI: In general we explore all these. We invest in the right ones. And I am very proud that we’ve taken this very seriously when it comes to our operation globally. So many of our investing companies are heavily engaged in these – in these, you know, technologies and ensuring that we are in our operation with a maximum efficiency.
Some of our investing companies, in fact, not only done that to ensure that we develop and produce hydrocarbon with the maximum efficiency, but we also integrated the renewable energy in our value chain. For example, Cepsa, they venture into renewable energy a few years back. They’re adding biofuel in their mix. So they are positioning themselves, taking into account the future trends for the – for climate change.
MR. DEFTERIOS: Right. You know it’s fascinating because here in the region – and I’ve, you know, been here for nine years now – you look at the moves by ADNOC in Al Ruwais going downstream into petrochemicals, you look at what Saudi Aramco is doing on that front as well and the big investment they have, for example, in Johor in Malaysia – $25 billion plant, working there with the national oil company of Malaysia as well, PETRONAS. How do you see petrochemicals? Because many in public feel like this is the dirty word in the industry, but you can’t live without them. Is there a lack of communication of what reality will bring us over the next 30 years in the transition? And how do you invest with ESG in mind in petrochemicals?
MR. AL-KAABI: Well, when it comes to the petrochemical the story is slightly different than the upstream side of the business. In the petrochemical we anticipate – we still believe that the demand growth is strong, on average 1 percent above global GDP. So that positioned the industry into the right growth going forward.
But with that growth comes responsibility. And we’re very proud that we – in our investment we always keep in mind the circular economy issue. So we’re a big investor with – or with a wonderful investing company, Borealis, in a circular economy, recycling initiatives, plus raise the awareness of plastic waste; and that NOVA Chemicals, Borealis, and others join hands to ensure – Borouge also here in Abu Dhabi – to ensure that we raise the awareness about plastic waste and we do something about it – action on the ground, especially in Southeast Asia.
There are also emerging technologies when it comes to the process itself. Inherently it’s an energy-intensive industry, but there are emerging technologies. For example, Borealis is involved in this cracker of the future. And cracker of your future, their conceptual idea is basically to be able to produce and operate these energy-intensive facilities with almost zero carbon emission in the future.
MR. DEFTERIOS: Yeah. You know, I’d love to get your thoughts as a closing question here, your views on carbon capture and storage. Everybody’s interesting in CCUS or CCS, depending on how you define it, but the cost is expensive and then reapplication of the product is not clearly defined. Do you jump in now, or what are you doing?
MR. AL-KAABI: I think, as I mentioned earlier, responsible investor means that we need to pay attention to emerging technology that will eradicate CO2 emission(s). And one of the promising technologies is carbon capture. We are very proud that, you know, in this part of the world ADNOC is running one of the – one of biggest-scale commercial carbon-capture projects. We see also elsewhere in the world.
But I am optimistic. I’ve been in the – in the industry for more than 20 years. There is one thing that never let me down, is the technology. So I’m very optimistic that with the emerging technological breakthroughs when it comes to emissions, I think we will see something that would help minimize and ultimately hopefully eradicate the CO2 emission(s) in the future.
MR. DEFTERIOS: I wasn’t planning to ask you this, but I think it’s interesting to bring it up. I’m hearing the narrative change also with the World Bank, the International Monetary Fund, the regional development banks. But you know, this country has a lot of clout. There’s $1.3 trillion of sovereign wealth in Abu Dhabi alone. If you look at that coal consumption in Asia, money talks. I mean, shouldn’t this be leading that discussion to say how fast can we either bring in the cleanest technologies of coal to Asia or transition you out into the gas sphere and then move you into the renewable space as fast as possible? Don’t you find that it’s a responsibility of the major, you know, sovereign funds of the world, the major lending banks and institutions, to put it at the top of their priority list – not in the top five, but at the top – knowing the challenge that’s ahead of us?
MR. AL-KAABI: I think it’s an interesting observation, but ultimately we are an investment company. So we will do things based on a certain criteria.
Of course, the ESG – integration of ESG as part of our investment philosophy would help into that direction. And I see a future where many investment institutions, financial institutions globally, will put more efforts into accelerating the energy transition in the future.
So ultimately, optimistic. And hope to see a more active role from everyone around the world to help and position, you know – you know, the energy into the right space in the –
MR. DEFTERIOS: But you are confident, it sounds like, very different than the conversation we had before about innovation disrupting the challenge today and assisting.
MR. AL-KAABI: I am optimistic that innovation will help eradicate the – you know, the CO2 emission(s) and the climate – and help fix the climate change in the long term. And I am optimistic, also, to see many people are redirecting their narratives. You see it in the morning with Fatih Birol. It’s a long list of, you know, methods that would help us to get to where we want. It’s not going to be one single solution. It’s going to be a combination of many solutions, and we have a responsibility as an oil producers or a consuming nations to find the right balance.
MR. DEFTERIOS: It’s great to see you, yeah, in the new year.
MR. AL-KAABI: Welcome.
MR. DEFTERIOS: Musabbeh Al-Kaabi –
MR. AL-KAABI: Thank you.
MR. DEFTERIOS: – once again, the CEO of MIC’s area of petroleum and petrochemicals. (Applause.)
MR. AL-KAABI: Thank you.
MR. DEFTERIOS: Great to see you.
MR. AL-KAABI: Thanks a lot. (Applause.)
MR. DEFTERIOS: They’re going to do a little bit of a set change here to bring out more chairs. Unfortunately, the secretary-general of OPEC, His Excellency Mohammed al-Barkindo – I saw him a couple days ago and we sat him at the Gulf Intelligence conference earlier in the week – has suffered very strong respiratory flu because of the schedule they’ve been keeping on the road, so he’s not joining us. He said it had nothing to do – is that right, Shakir (ph)? – has nothing to do with the hard questions we gave him around the OPEC coverage before he hit the road again. But it’s a disappointment he couldn’t be on the stage.
But we have a fantastic panel to pick up on the conversation we had with Musabbeh. I’m very proud as a network for CNN, and personally because I developed the concept. If you haven’t seen our series that’s on the market today, we have a new documentary coming out on January 16th that’s called “The Global Energy Challenge.” It has a website. It has the documentaries, has our field reports, has the digital stories. I really invite you to join the debate with us because it’s a network priority along with another programming strand called “The Call to Earth.” We’re taking it really seriously as a network. And you know me from the Atlantic Council and being here in Abu Dhabi for nine years. Please email us, reach us on the website. We’re open to ideas about how fast this energy transition can take place and the most effective way to use oil and gas in that transition. So it’s a great initiative, but we would like to get everybody involved. And we’re going to do a panel at Davos called “The Global Energy Challenge” to foster that debate even faster.
Let’s give a warm welcome to our next three panelists. We’re going to be joined here by Barbara Burger, the president of technology ventures for Chevron Corporation. Give her a nice welcome. (Applause.)
BARBARA BURGER: Thank you.
MR. DEFTERIOS: You’re in the first one on the left there, Barbara.
MS. BURGER: Here or here?
MR. DEFTERIOS: Yeah, take the one on the left. Thank you very much.
MS. BURGER: OK.
MR. DEFTERIOS: Anatol Feygin is the executive vice president and chief commercial officer for Cheniere Energy, the natural gas exporter from the United States – (applause) – with a huge facility in Port Arthur, and that’s not all.
Robert Johnston’s the senior fellow of the Global Energy Center for the Atlantic Council and also the managing director and executive advisor for Eurasia Group. A nice warm welcome to him. (Applause.)
We have 42 minutes for a debate with three people. It’s not bad, but it just needs you to be really direct. I want to make sure we have microphones in the audience as well because I’m going to try to roam around. Do we have handheld mics? I just want to see. And if we don’t have them, let’s bring them to the fore because I want to leave about 10 minutes at the end of the debate for people to ask questions. So if we don’t have them, I’m going to circulate in between that center aisle as well.
We have the benefit, Robert, of you just putting out a fantastic report about the energy transition. If you haven’t seen it – I’m sure it’s going to be up on the app as well – ask the folks from the Atlantic Council to take a peek. But I had a chance to read it before we brought this panel together. So have our other panelists as well because we’ve had conversations about it.
You know, there’s a couple of things I wanted to start off with. One is that we make a grand assumption within the energy sector that demand to 2040 or 2050 can hold for oil on a daily basis at 100 million barrels, and you see different variances in your report with Shell coming out with a kind of a centrist one that’s around 75, I think, million barrels a day, then the IAEA having another one with all of the technologies that have been put up on the board by Fatih in his briefing this morning that takes that down to 60 (million barrels). Now, that is a radical variable, from 100 million to 60 million. Where do you sit on it, Robert? Have you made a call in that space? And how radical the disruption will be, let’s start there.
ROBERT JOHNSTON: Yeah, I think that it’s interesting to look at the wide range of forecasts because 20 years ago, even 10 years ago, all the oil demand forecasts were only really going one direction and it was a question of how steep the slope would be upwards. Now we have mostly plateaus and peaks and these deep decarbonization scenarios that signal, you know, eventual peak and a gradual decline.
I actually think that, given how important policy is to oil demand and the role that governments can play in shaping energy policy and climate policy, I would really question whether we’re actually seeing governments around the world take the kind of steps that would lead to these radical changes in oil demand. I mean, you can see what those policy pathways look like. It could be internal combustion engine bans. It could be much higher taxes on fuel consumption, subsidies for mass transit and new energy vehicles. But are we really seeing that on a scale that would get us to, say, 50 million barrels a day in 2040? My answer would be for now no.
MR. DEFTERIOS: And you say that because you just don’t think people are going to make that investment transition at the same time?
MS. JOHNSTON: Yeah, I think that on the government side – we talk about what investors are doing separately, and civil society for that matter – but governments, especially in the OECD, are faced with a dilemma, which is this: Voters want action on climate change and they don’t want to pay for it. And I think we’ve seen that in the U.S., Canada, Australia, France, a number of markets. It’s starting to change, and it may be that we have a climate emergency that causes voters to change that trajectory. But for now, if I look at my home country of Canada, it was very controversial even to have a 10-cent a liter carbon tax that’s fully refunded to the consumer. That created a political firestorm and cost the Trudeau government their majority, going back to minority, in a country that’s fairly sympathetic to climate issues. France is another great case study of that as well. So again, voters want climate action but don’t want to pay for it. Until that changes, I’m not sure we’re going to have this rapid peak in oil demand.
MR. DEFTERIOS: OK. I want to circle back with you a bit afterwards about what the European Union’s been talking about as of late and it’s going to go into its policy, a carbon border tax where you tax the goods coming in and their origin if a country is not meeting the obligations of the Paris Climate Agreement, which would be quite punishing against countries in Southeast Asia for example. Particularly, China’s already pushing against this sort of concept.
Barbara Burger, let’s discuss the roles of the IOCs in the energy transition. And this is very difficult, and I was having that conversation with Musabbeh before, because of ESG today and the pressure of institutional investors to say we need you to accelerate the transition. But you are a publicly-traded company that needs to make money. So give us a sense of Chevron’s approach to the transition. And you’re handling ventures, and you have to invest to broaden out the portfolio. How do you manage that mix, six years as the head of that division at Chevron?
MS. BURGER: Yeah. Well, sure. Thanks. And I appreciate being here.
So if I start at the very highest level of how Chevron’s handling the energy transition, we’ve heard it today that – you know, reliable supply and a lower carbon footprint. So you got to do both.
And so we have a three-prong approach. And the first one is, you know, the base business needs to be decarbonized. There’s lots of things we can do right now. We have a really good story on methane, and you know, and what we can do with that. The technology’s already there. And so lowering the emissions, we’ve set commitments for both oil and gas carbon intensity and methane reduction. And our compensation from our CEO down to every employee in Chevron is dependent on that.
We’ve also incorporated renewables into our business. We have a large play in the Permian. It turns out that the sun shines there and the wind blows, and so we’ve incorporated renewables to power our business. We’ve incorporated biomass into our – into our fuels business in California.
And lastly – and my colleague from Saudi Aramco talked about it – innovation’s going to be a key player. So investing in breakthrough technologies, either directly through the organization I run or through the oil and gas climate initiative.
So three-prong. It’s kind of today and tomorrow. And there’s a lot to do.
MR. DEFTERIOS: Good. I brought it up with Musabbeh, but there’s these expectations particularly in the Gen Zed generation; they just don’t want hydrocarbons. And we have this reality gap; it’s like, do you want the light switches to go on or do you enjoy warm water, right, or a hot shower. How do you manage that as an IOC? Because I’m hearing the narrative in the U.K. especially about oil and gas companies losing their license to trade in the near future, like a decade or 20 years from now. Is that a real threat to an IOC today if you don’t diversify that portfolio? I know it’s a very sensitive question, but I’m sure it’s not the first time you heard it.
MS. BURGER: No, no. And you know, there’s a lot of headwinds. And I think we’ve heard today, and I think, you know, one of the things that I certainly think we need to do a better job is the narrative. And so, you know, we’re all attuned to the headlines, but if you really understand the whole energy system, what it takes, where our products are produced and where they go, and then what we’re doing to lower the emissions. You know, I think it’s a compelling narrative and it’s a narrative that needs to get stronger.
But listen, you know, the very people you’re talking about, many of them are employees of our companies. So they keep us on our toes. I think it’s a really interesting transition we’ve had in our company. And so our employees are pushing as hard as the public is, as hard as our investors are. And I think that’s a good thing for us.
MR. DEFTERIOS: So there’s a narrative inside the – a push and pull within the company itself.
MS. BURGER: That’s right. That’s right.
MR. DEFTERIOS: OK, there’s one thing, before I bring Anatol into the debate, every time I hear this discussion taking place from an IOC, the outside world always says, oh, that’s just screen washing, because they really just need to make money in oil and gas. (Laughs.) How do you avoid this discussion, and how do you prove otherwise?
MS. BURGER: Well, you tell the narrative. You say look at our actions. You look at not only what we invest in, but then how we use it to change our operations. And I think those are the tests. And I will tell you, it’s the same answer I give when an employee inside Chevron says, hey, is this real? I tell them the same thing.
MR. DEFTERIOS: OK, very interesting.
Anatol, you guys are such a game changer in Texas with your export facilities. I was just wondering, as a beginning point – and this is a narrative that’s taken place with the methane, as you know, in shale, in the basins there in the United States, trying to reduce the methane, the level that’s been done, reduce the CO2 emissions. Do you have the purchasing power to demand that from the producers? I know it’s kind of a different way of – I’m sure you’ve probably thought about it before.
ANATOL FEYGIN: Right.
MR. DEFTERIOS: But is that going to be the case where the buyers of this fuel eventually – and you’re the connectors of the global market – will say what’s your ESG in production, right? Are we going to get to that stage?
MR. FEYGIN: Great question. Thanks, John.
Yeah, I am fortunate to represent this game changer here. The first time I was on this stage four years ago, we hadn’t even been operating for a year. Today we are the second-largest operator of liquefaction facilities in the world and by far the largest – to your question, by far the largest physical buyer of methane in North America.
And with that comes – come a lot of challenges and a lot of responsibilities. And we are certainly working with our suppliers, both of hydrocarbons as well as infrastructure providers, to first measure – part of the dialogue and part of the challenge here is this is a relatively new dialogue, and we have to have the right science and the right measurement capability to create these baselines, to analyze what our producer community and our infrastructure-provider community do on a daily basis, and then work with them to continuously improve and continue to minimize fugitive emissions, continue to improve the process.
We, according to the DOE studies and lifecycle-emission studies, we in the liquefaction portion of the value chain are a relatively small piece. We have our own goals. We will continue to improve operations, continue to reduce emissions ourselves. But precisely to your question, the single biggest impact we can have is by working with the supply chain. And that is something that engineers are working on and will continue to work on over the coming decades.
MR. DEFTERIOS: Good. Do the smaller producers understand that, Anatol, in your view, or not? I mean, they’re kind of wildcatters, modern-day wildcatters, right, because they came in and were the innovators of shale.
MR. FEYGIN: Absolutely. We’ve talked in this forum and others that there are hundreds – in fact, thousands – of producers. Every day we transact with upwards of 50 producers on a couple of dozen different pipeline systems. So – and you’re absolutely right. Some of them are fairly small. But over 80 percent of our volume comes from producers that produce over a BCF of gas a day. So it is a fairly sophisticated and fairly capable suite of producers.
That said, as you and I’m sure everyone here knows, the North American producer community is going through some challenges. And for them every penny and every dime counts. But they also understand that their molecules, their incremental molecules, are destined for export, whether that is oil, NGLs or methane. And they do understand that the best way for them to support the marketing of those molecules is to be able to show how environmentally sound those processes are.
So some of our best conversations, some of our best traction, is actually with the midsize producers that are very focused on that, companies like Southwestern Energy and others.
MR. DEFTERIOS: OK, very good.
Robert, let’s bring you back into the discussion, if I don’t trip over a speaker here. And I’m going to bring it to Barbara as well.
I just think we should take a pause or a left turn and talk about what the president said, President Trump, in the last week. We’ve got energy independence. We don’t need oil from the Middle East. Actually, I was covering it for two days. That’s not the case, of course. But you have to acknowledge this radical development of shale, adding 8 million barrels a day over the last decade. It is very radical.
But I’m wondering, to Anatol’s point here, the sustainability of shale, because you have to make money again, right? There’s demand for the gas around the world. How do you see this playing out in the Permian?
And Chevron has investments. So Barbara, you don’t need me to ask the question. Just jump in right after Robert.
MS. BURGER: Yeah, sure.
MR. DEFTERIOS: Robert, what do you think?
MR. JOHNSTON: I think it’s a question of not just the traditional financial metrics of how do you make money in the shale, but also what’s the low-carbon business model. So I think, in the ESG world, you have trillions of dollars of capital that are screening specifically for the best-in-class producers on methane, on water use, on land use, on other ESG metrics. So I think that’s a real question. And that’s the dual challenge that, you know, Chevron and other companies are dealing with.
That said, I think, if I were to bet, as a geopolitical analyst, on which countries are the most likely to figure it out, I think the U.S. would be one of the countries that has the potential to be a leader in ESG. And I think what we’ve heard from UAE is very much the same story here today. And that’s going to be critical, I think, not just in terms of access to capital for growth, but as Barbara suggested, access to talent as well; that the youngers workers, the skilled workers, have choices of where to go. Am I going to the tech sector? Am I going to financial services? And if you have that ESG story right in oil and gas, you can continue to attract the talent as well as the capital.
MR. DEFTERIOS: Good. How about the long-term viability of shale? And when does it peak? I interviewed, for the documentary we did for the Global Energy Challenge, Scott Sheffield. And he was thinking by 2025 you could see the peak of shale production and then it levels off and then tails. The reserves are not an issue. Making money is an issue, right, and that sort of viability and having the environment front and center as part of the policy that Anatol was talking about.
MR. JOHNSTON: Yeah.
MR. DEFTERIOS: What do you think?
MR. JOHNSTON: There’s a lot of opinions out there on this one. I actually think the peak will come before then, but it’ll be a very long plateau at a relatively high level, probably somewhere between another half a million barrels a day to a million of growth this year. But after that, given the change in the financial model, the emphasis on returning capital to shareholders, not drilling like crazy, not acquiring land like crazy, will help support that plateau.
What’s important about that for this part of the world is that I think, in the scenario with the shale plateau, OPEC gets to take back some of its market share.
MR. DEFTERIOS: Right. So the strategy did work, then, to rebalance the market, not destroy shale. But they’ll have their time as traditional oil and gas producers, you think, in OPEC?
MR. JOHNSTON: Absolutely.
MR. DEFTERIOS: OK, good.
Barbara, I don’t mean to be so blunt or crude about it, but are the adults in the room now –
MS. BURGER: (Laughs.)
MR. DEFTERIOS: – in the Permian Basin or the Delaware Basin or the Bakken fields, where you had the wildcatters come in and then the IOC see the opportunity? They don’t have to pay for research and development. They don’t have to pay for exploration. It’s there and you can do it more efficiently? What do you say?
MS. BURGER: (Laughs.) Well –
MR. DEFTERIOS: I didn’t mean to take you off guard there, but –
MS. BURGER: No, no. But I’m going to take it from the angle of the adults from an innovation standpoint. And I actually credit a lot of the independents with the fact that they didn’t have R&D. They were very willing to go to outside innovation. And I think the Permian, from a production standpoint, from an emission standpoint, from a water management, as Robert said, has really had a thirst for innovation.
And it’s been, in some respects, a marriage of Silicon Valley and Houston and West Texas together. We’ve brought the costs down for production. We’re figuring out the water usage. I think there’s more to come on that. And we can detect methane and we can mitigate it.
So, yeah, we take a more systematic approach than others to that. But the key to that is all the ways you can do that sustainability. Innovation plays a big part of that.
MR. DEFTERIOS: Good. These investments that have been made in the shale basins, for example, by Chevron or by Occidental Petroleum, by – I know BP’s involved; I mean, pretty much every major player is in shale. They were good investment decisions? Did you overpay for assets, excited about it? Or because of the fact you have no exploration costs as part of this equation today, it’ll all pay off and you’ll be happy along the path?
MS. BURGER: We’ve been in the Permian for a long time. We have a really nice position there. So I think we’re very happy. And you can see from news releases we put out we continue to grow our position there. So we’re happy with it.
MR. DEFTERIOS: OK, good. OK, there’s no disposal of assets that are coming in the pipeline from that standpoint.
Anatol, this is interesting because President Trump – and this is not a geopolitical panel – but he’s made the export of natural gas, or LNG, a priority, right, and is even putting sanctions on those developing pipelines from Russia to Germany, right, and the Nord Stream 2. If they get China agreement in the first phase here does gas go back into China and not get blocked? So it’s a great game of natural gas that reduces emissions around the world. We have Russia, Qatar, Australia in the game. And the U.S. is a game-changer. How do you see the next 10 years if we’re going to make this push in the energy transition to reduce coal in Asia, get gas into the market? What’s going to be the U.S. role and how does Cheniere benefit from this?
MR. FEYGIN: I think the U.S. has already shown itself to be a reliable, secure, affordable supplier of natural gas globally. You could look at the export statistics on a quarterly basis. The makeup of destinations of the cargos that leave Louisiana, Texas, Maryland literally go all over the world. We’ve exported now to over 30 countries. And that has been, to use your words, a game-changer. The flexibility, the business model itself, and of course the volumes that are coming to market.
With respect to China, we look forward to the continued growth of China’s gas demand, what we think the U.S. and Cheniere in particular are very well-positioned to continue to serve that. As you know, we do have a number of direct transactions with PetroChina itself. And that said, no cargo of U.S. LNG has arrived in China since April of 2019. So clearly the normalization of trade relations and opening of free trade for LNG is something that we very much look forward to. If that doesn’t happen, we are still very confident that China’s demand for gas will continue to grow. It will be satisfied by volumes from another region. And U.S. volumes will backfill the global market. And that’s exactly what you’ve seen – what you’ve seen to date.
So we will be in the coming years. Last year Australia was the largest exporting country. The U.S. will be the largest, U.S., exporting country in the next three or four years. After that, you know, it depends on the cadence of projects coming online. But you will have five major exporting centers of LNG in the world. And we think that will support a very healthy growth trajectory for natural gas during this transition, continue to take market share away from coal and liquid fuels in a lot of markets. And we do think that China will be one of the major drivers of that – of that demand growth. So looking forward to – looking forward to better days ahead.
MR. DEFTERIOS: Thanks. Yeah, and to reengage, right? You got to have China in the portfolio.
MR. FEYGIN: Absolutely.
MR. DEFTERIOS: One more geopolitical question for you, and then I want to get into this idea of the different technologies in the transition where oil and gas is used most effectively. And let’s get Robert to jump in first, and then Barbara.
The narrative of stranded assets and the geopolitics of it. First, Robert, do you think that the geopolitics will slow down the transition because you have risk, say, in a Saudi Arabia that’s going through this diversification process? That’s not acute. It’s not acute in the UAE because of the reserves and the way they’re managing their energy resources. I would say Iran, Iraq, Libya, Angola, you could pick a bunch of others, Venezuela, this is a real threat to these economies, is it not? And how do you see this playing out? This is your specialty.
MR. JOHNSTON: Yeah. I think in the context of stranded assets there’s also a discussion about stranded countries, right? Stranded upstream markets that tend to benefit when oil prices are high and there’s a bullish outlook for demand, and investors are willing to take risk in uncertain markets. But I think there are a lot of post-conflict societies, or maybe still in the middle of conflict societies, that are going to struggle to attract capital in a world that’s transitioning to lower-carbon sources of fuel, and where the overall capital pool for oil is smaller than it used to be, and investors are looking for those low-carbon solutions.
So I agree with you on Venezuela. I worry about Libya, and how to rebuild that country. Where is investment going to come from there? Nigeria, perhaps. Even parts of the former Soviet Union. Certainly with what’s happening in the region here, with Iran and Iraq. You know, 10 years ago those are all regions that would have received both IOC and NOC investment. Now I think there’s far fewer players willing to invest. Where are the companies investing? They’re investing in the shale with the short cycle and political stability. They’re investing in areas where they can leverage their technology. They’re investing in gas as part of the fuel-switching solution. And they’re investing in renewables and in innovation. So in that scenario, if the money’s going there, who does rebuild Venezuela? Who does rebuild Libya? I think there are some geopolitical risks around that.
MR. DEFTERIOS: Hmm. Right. Does it slow down the transition, in your view, or not?
MR. JOHNSTON: Well, it will make it volatile, right, in terms of the supply shocks, and disruptions, and political instability in those places could have a short-term impact on prices, certainly. But I wouldn’t say it slows down the overall direction, no.
MR. DEFTERIOS: OK. Chevron has Kazakhstan, the big Tengiz field. You’re reinvesting in there to pick up production. Nigeria, one that Robert flagged. Angola, Indonesia, big gas operations in Australia, the neutral zone between the Kingdom of Saudi Arabia and Kuwait, which is getting a settlement here. Do they all stay in the portfolio, in your view, or in this future – in the transition?
MS. BURGER: I mean, you know, we look at our portfolio all the time. There are a lot of factors there. You forgot about Venezuela there. You know, everybody has to compete for capital. But you know, we’re a long-term player. We participate in those markets and in those countries sometimes at the request of the local government. So that will factor into it as well.
MR. DEFTERIOS: OK, good. You did take a write down – and you’re not alone on this, right – it was $10 billion, right?
MS. BURGER: That’s right.
MR. DEFTERIOS: So for which assets did you decide to make a tougher decision and say, this doesn’t work in our equation today?
MS. BURGER: Well, the largest one was for – in the Marcellus. And that was a case of the expectations we had relative to the gas plays in the northeast don’t look quite as optimistic as we thought they would. I’m sure, Anatol, you will – you will know about that. So, you know, that was a standard accounting measure relative to those. And I think all of us have been disappointed with the gas market in that part of the country.
MR. DEFTERIOS: Yeah. In fact, what brings the gas market back up, Anatol? This is a really interesting thing because you have a divergence with oil, which is going to make it a lot – make it difficult for people to make money in this business, I would imagine, right?
MR. FEYGIN: Yeah. In fact, on the North American pricing, the largest oil to gas ratio in the modern era. You know, it’s a great question. This very large democratized producer base, very large portfolio of infrastructure providers. And one of the – one of the big dynamics that’s going to play out over the next couple of years is that there was a massive amount of infrastructure that was added between 10 and 15 years ago in North America. And all of those assets essentially get repriced. And that’s going to be a very substantial relief valve to the producers as a lot of infrastructure is available and the economics of that are no longer the new build economics that got them into service.
That’s, in our view, going to be a very large help for the northeast. The northeast Marcellus and Utica are going to have a very difficult time building new infrastructure. So we’re not very optimistic on production growth out of that – out of that basin. But the economics for the producers are, in our view, going to marginally improve. So we’re in a situation today where deferred natural gas prices in North America have never been lower. You know, when Cheniere came to the market with U.S. LNG exports, the price for natural gas – in the fall of 2011 the price for natural gas in 2020 was over $7. Today, the price for 2030 is below $3.
Now, that said, producers, given their tremendous efficiency gains, some of this – these repricing dynamic may find themselves more profitable at 2.50 (dollars) two years from now than they would have been at $7, you know, 10 years ago. So we think this sort of $2.50-3 range is something that the producer community can generate relatively attractive returns in. But, to Robert’s point, it’s not going to be the kind of – the kind of floodgates that flooded the super growth period over the last decade.
MR. DEFTERIOS: Good. Very quickly, what do you land in China then, with the $2.50-3 price, how do you land it in China? Can you compete against the Qataris?
MR. FEYGIN: Yeah, I think the – you know, from an upstream standpoint clearly there is no competing with the resource bases that are, you know, essentially free when you factor in the subsidization from the liquid side. And, you know, obviously from a proximity standpoint, we’re not – we’re not that close to the major growth enter. But the way the world has worked out and the commercial aspects that we can offer – the flexibility, the reliability of the offering. We are competitive, and we think that U.S. LNG and Cheniere will have a big seat at the table to feed Asian gas demand growth.
Basically, the LNG market has kind of resolved to – you need to be somewhere in the seven to seven-fifty on a delivered basis into Asia to have a seat at the table. And U.S. Gulf Coast LNG can do that.
MR. DEFTERIOS: Good. I said I would open up the floor in the last five to seven minutes here. Do we have any questions from the floor? We have a microphone here, we have one here, do we have another one so we can just do rapid fire? I would ask you to be very direct and then give it to – your name, please?
Q: Yes. Thank you, John.
MR. DEFTERIOS: Uh-huh. It’ll come back up, don’t worry. Can we get that mic up, please?
MR. DEFTERIOS: Thank you.
Q: Thank you, John, and the rest of the distinguished panelists. This is Waleed Al-Somali from Saudi Aramco – Saudi Arabia –
MR. DEFTERIOS: Sorry. We just need the mic up a little bit more, you guys. I can’t hear him in the front here.
Q: Two brief questions to the distinguished panelists. One, in order to make this swift and strategic transition, what role do you think this part of the world needs to play in encouraging, and promoting a technology base and entrepreneurship? Small, medium-sized enterprises and startups that can help making this transition? Working closely with IOCs and –
MR. DEFTERIOS: OK, stop for just a second. We just stood for time. I’m going to get you the second question, just a second.
Barbara, you’re great at this, I would imagine, right? How do you foster the SME sector to come up with disruptive technologies to accelerate it?
MS. BURGER: Yeah. No, it’s a great question. I think – I think our role is twofold. One is to foster the innovation externally, and then to collaborate internally to scale the demand. So I think all of us, and particular the corporates and the governments, play a role in making sure that young people will take a career risk. And I’m not just saying young people because innovators can be of all ages. But they will take a career risk to go out and try to solve these problems. And so they need to have – they need to have support in the early days. They need to have access to technical resources, and technical facilities. And there needs to be enough of them around so if one fails they can go and work on another one. We see those ecosystems particularly around universities. And so we – so we do a lot to make sure that there’s enough innovation so that we can do our goal. It’s a great question.
MR. DEFTERIOS: Good. Also, just a second there, this idea of failure – in America people almost give you a badge of honor. Like, you ran out, you tried to make a difference, you crashed, you get back up and start again. That’s not accepted in the Middle East, Barbara. How do you leap over that mentality?
MS. BURGER: Yeah. And it’s not very well-accepted in our industry too well. So I think all of us have some work to do on that. Take a portfolio approach. If your batting average for the portfolio is reasonably good, you can have some real winners in there and you can have some things that didn’t pan out.
MR. DEFTERIOS: Good. Do you have a question for Anatol or for Bob?
Q: Regarding sustainability –
MR. DEFTERIOS: Keep that microphone close.
Q: Sure. Regarding sustainability, so the United Nations set 17 what they call Sustainable Development Goals for the rest of the world to execute by 2030. How do you see creating more awareness about these Sustainable Development Goals, cooperation? It seems government are focusing, and they have specific organization. They work with United Nations and other players in there. But how you create awareness, how you establish a line of sight between these 17 Sustainable Development Goals, corporate, education institutions, and others, so they can help push the sustainability agenda?
MR. DEFTERIOS: Robert or Anatol, you want to jump in? I think this is interesting because we know the 17, but they’re not talked about a lot. I think that’s your point. Robert?
MR. JOHNSTON: No, it’s a great question. I think that we look, again, at the ESG investment framework. There’s a lot of media coverage of climate, as there should be. But the other SDG goals, some of which were mentioned in the discussion this morning – like access to energy, alleviating poverty – are not as embedded in those ESG goals yet. But I think that’s going to start to change. So that’s one possibility that could make a change.
MR. DEFTERIOS: OK. I’m going to take the question from the board here. And this is something I posed to Musabbeh Al-Kaabi. How do you see the challenges regarding recent developments of big lenders? And I’ll – because of time I’ll abbreviate it. But you have the World Bank, and the regional development banks at some of the major institutions refuse to go into fossil fuels. And then how do you tackle providing energy to the world and the last billion that don’t have access to electricity? Anatol, I’m sure you have some thoughts about it. It’s a big problem.
MR. FEYGIN: Well, fortunately we are now in a world that has at last count something like 9 or 10 trillion (dollars) of investment with a negative yield. And the amount of capital that is available for projects that are modestly de-risked and have attractive returns is more than sufficient. You know, the story of Cheniere, granted, started before this movement really took off. We’ve deployed, to date, over $40 billion. When we started, the company really had no money but had these projects, had the contracts, and hence was able to raise private equity and then project financing, and then bank debt, and then public debt. And you see that, and you see the infrastructure funds as readily available to lend into projects that have checked sufficient boxes.
It is a failure, as we’ve discussed on this stage and over the last couple of years, of our industry to effectively communicate the – all of the good aspects and the balancing act that this industry helps perform vis-à-vis energy poverty, vis-à-vis efficient delivery of a necessary resource to the world. So it would be good if the multilateral institutions were more pragmatic about it, in my view. But I think for the vast majority of the projects, capital will be available. But there’s an education process that this industry has failed at.
MR. DEFTERIOS: Good. In fact, we saw the mayor of London and mayor of New York come together with a joint announcement about the hydrocarbons, and we don’t want it – hydrocarbon investment and the like. I don’t think that helps the debate, but it leads us to the last question. And we have only 30 seconds. So, Barbara, give me, like, an answer of 30 seconds or a minute. How much green investment do we need to tackle the transition here to 2050 and get us closer to 1.5 degrees centigrade of global warming and not three, that Fatih Birol was talking about? We’ve reached the tipping point in power generation. It’s almost 50 percent hydrocarbons and 50 percent renewables. Too much of those hydrocarbons are coal. What is your view, if you look out to 2050? Strange for an IOC, but you’re going to be more of a – not less of an oil and gas company, but more of a(n) energy company, right, in the next 20 years?
MS. BURGER: So it’s going to take a lot of investment, but it’s going to take a plan. It’s going to take innovation. It’s going to take policy. You know, I think investment’s only one piece of it. And I think what Anatol said was it’s also going to take practical approaches to this. The binary approach I don’t think is going to work.
MR. DEFTERIOS: Right. Perfect. That was a very direct point. And I think if I talk to you in five years, that narrative for Chevron or other IOC will evolve much more rapidly, I would think. It sounds like it already is.
We didn’t get to get a chance into your venture capital basket, if you will, but it was an excellent debate. Let’s give a nice warm welcome to Barbara Burger of Chevron, Anatol Feygin of Cheniere, Robert Johnston of the Atlantic Council and the Eurasia Group. Thank you very, very much for the questions from the floor as well. (Applause.)
MR. JOHNSTON: Thank you, John.
MS. BURGER: Well done.
MR. DEFTERIOS: We exit stage right to the back here. Thanks.