The Improbable Energy Giant: The U.S. in the Age of Unconventional Resources
By Pierre R. Breber, Corporate Vice President and President, Chevron Gas and Midstream
Remarks at the Johnson Club of the Bay Area Annual Predictions Dinner
Menlo Park, California, January 22, 2015
I know you're expecting me to give you some high-level predictions about the energy industry – something easy, like where the price of oil is going.
But, instead I'd like to start tonight by quoting Yogi Berra, who said, "It's tough to make predictions… especially about the future."
In the spirit of Yogi's quote, I'm going to talk about something that no one predicted… the rise of the U.S. to be the world's fastest growing, and largest, producer of energy.
Back in the mid-1980s, around the time I was at Cornell, U.S. oil production peaked near 9 million barrels a day. During the next 20 years, it declined steadily to roughly half of the peak.
Companies like Chevron looked outside of the U.S. to grow production to places like West Africa, Kazakhstan and Australia.
How could anyone predict the U.S. would again be a giant in oil and gas production? The U.S. had been importing crude oil for over a century, and we were so certain the country would be short of natural gas that a number of new import terminals were built for liquefied natural gas, or LNG.
Today, those import facilities are largely idle because U.S. wildcatters – the energy industry's version of Silicon Valley start-ups – wouldn't give up. They were determined to crack the code to produce crude oil and natural gas from shale and tight rocks, what we call unconventional resources.
It took a few years but, in industry terms, it seemed that overnight America became the improbable energy giant.
Since 2010, U.S. crude oil production has increased over 75 percent. The U.S. is now the world's largest producer of oil and other petroleum liquids – bigger than Saudi Arabia and Russia. Let me repeat that, bigger than longstanding energy giants Saudi Arabia and Russia.
And some of those natural gas import facilities I was telling you about are, at this very moment, being converted for export. By 2020, the US could be the world's largest exporter of LNG – bigger than Qatar and Australia.
This renaissance in U.S. production is helping our refineries become more competitive. The U.S. is now the world's largest exporter of refined products, like gasoline and diesel.
Think about it – the U.S. is the world's number one oil producer and number one exporter of gasoline and diesel. And, in a few years, it could be the number one exporter of LNG. It's truly extraordinary.
The rise of the United States in the age of unconventional resources is yet another chapter in the great American story, much like the industrial revolution and the IT revolution. As with those revolutions, the world is scrambling to duplicate our success – from China to Europe – and with good reason.
The knock-on impact on our economy is huge. The oil and natural gas industry has grown to support almost 10 million jobs and generate over $1.2 trillion in GDP – about 8 percent of the US economy.
The trade deficit is on the way down as imported oil has fallen by about 20% since 2009 and exports of refined products are up.
When LNG exports start, trade with our long-term allies in Asia and Europe will increase.
Already, higher production has contributed to lower oil prices, benefitting consumers, and lower natural gas prices, which is helping to bring back manufacturing jobs to this country.
So what you want up is up – jobs and economic growth. What you want down is down – the trade deficit and gasoline prices. And all in a way that supports our geopolitics and our allies, and our way of life.
Modern living is dependent on affordable and reliable energy. It enables a lifestyle where we're comfortable at all times in our buildings and homes, a lifestyle in which it's perfectly acceptable to fly across the country for a friend's wedding or to see our grandchildren, and where our jobs and livelihoods are connected to a high, value-added, economy.
People all around the world aspire to, and are working toward, our standard of life. It's often underappreciated just how much catching up even the middle-income world has to do. Let's take Thailand – a country where I recently lived and worked. It's a growing and successful economy. Yet its energy consumption per capita is about one quarter of that in the U.S. Or India, whose average citizen consumes less than 10 percent than the average American.
As these and other countries advance, and we work to maintain or even improve our quality of life, global energy demand will rise, and not just a little bit. We expect it to rise more than 40 percent by 2035.
Every modern necessity and convenience – from the food we eat, to the health system that keeps us well, to the many electronic devices that keep us connected and entertained wherever we are – all of it is dependent on energy in one form or another.
So how are we going to meet that demand?
We're going to need all forms of energy – crude oil, natural gas, coal, nuclear and renewables along with increased energy efficiency improvements. This is a tremendous challenge.
The world's energy industry is already massive. Think of transportation. Every car, truck, ship, plane, and train in the world right now consumes only 19 percent of the world's energy. Isn't that surprising?
So no one source of energy can meet the world's needs. I know that many wish renewables could fill the gap in the near future. But it is not a gap, it's a chasm. And while solar and wind will continue to grow at a fast rate, they currently supply only 1% of the world's energy.
The challenge is scaling-up these renewable forms of energy. For example, if wind and solar were to provide 20 percent of U.S. electricity by 2035, then about one in every 200 acres of the U.S. would be used for wind and solar power. That's a land area roughly equal to the size of Massachusetts and New Hampshire.
Increased energy efficiency can help too. But change takes time. Let's look at gasoline hybrid vehicles as an example. The energy saving technology has been available for over 15 years and the cars look and feel like standard vehicles. Yet, the U.S. Department of Energy forecasts hybrids will make up less than 2 percent of the light-duty fleet in 2015.
Every bit helps, but that's a pretty small change.
I read a blog post last year by Severin Borenstein, the Berkeley professor and energy expert, entitled, "What wood smoke has taught me about fighting climate change."
Borenstein noted that many of his neighbors – whom he described as caring people who recycle their newspapers and shop with reusable bags, people like you and me – violated the bans on home wood fires during "spare the air" days.
What he concluded is that people will, understandably, avoid uncomfortable truths about the impacts of their lifestyle instead of changing the way they live, even if the change required is fairly small; in this case, not having a cozy fire during a winter night in California.
That's human nature, and I'm not criticizing anyone for it, but what it tells me is that people want a modern lifestyle.
For all these and other reasons, under almost any scenario, the International Energy Agency forecasts fossil fuels will account for at least two thirds or more of the world energy mix in 2035.
As countries advance, the growing global middle class will demand more energy – for mobility, power generation, heating and cooling, and high value jobs – to provide people all over the world with the quality of life that each one of us expects and deserves.
The U.S., as the improbable energy giant, serves as a model. Like Silicon Valley, our energy industry is the envy of the world, enabling progress, providing economic growth, reviving manufacturing, and creating jobs.
As global energy demand grows in the years ahead, having a thriving domestic oil and gas industry will become even more important, particularly during times like this, amid continued Middle East instability, tensions with Russia, and other geopolitical uncertainty.
But sustaining the rise of the United States in the age of unconventionals is easier said than done. It will take supporting all forms of energy and smart choices about balancing economic and environmental needs. There's a lot of noise obscuring these issues, which brings me back to Yogi Berra who said, "It was impossible to get a conversation going, everybody was talking too much."
On that note, I'm going to stop talking, in the hope that we, at least, can get a conversation going now with your questions.
Updated: January 2015