The Way Forward | Russell T. Rudy Energy LLC
John Hofmeister was the speaker at the recent Houston Chapter of the American Petroleum Institute (API) meeting at the Petroleum Club. Hofmeister is the former President of Shell Oil and is the current CEO of Citizens for Affordable Energy. His remarks dealt with how the industry got where it is, and how the U. S. in general, and the industry in particular, can extricate itself.
Most companies and individuals in the domestic energy industry find themselves in one of two groups; reeling from the recent devastation of the crude oil price collapse, or preparing for the next recovery. On the one hand we have had over 170 oil and gas companies go bankrupt since the downturn. On the other hand, Anadarko and EOG Resources have recently made major acquisitions, and Apache has a major discovery.
Hofmeister blames Russia, Iran, Saudi Arabia and the U. S. and their leaders for the current situation which has left us with 400,000 dead in Syria, and as many unemployed oil and gas workers in the U. S. Worse yet, he thinks that unlike previous energy crises, this time the recovery will be worse than the collapse. He thinks that in real dollars, that oil prices will be even higher than they were before.
The Saudis feared Iran and felt that they had been deserted by the Obama Administration. Left on their own, they realized they had two major weapons in their arsenal, a massive sovereign wealth fund and oil reserves. They decided their best strategy was to preserve oil market share and concurrently bankrupt Iran and Russia. They determined that the best way to do so was to drive prices as low as possible.
Russia and Iran, on the other hand, wanted to disrupt NATO and undermine the influence of the U. S. Low oil prices were a way to kill the nascent shale oil industry. By fomenting political chaos in the Middle East they sought to wreck social and economic havoc on the West by flooding these nations with refugees. Hofmeister notes that virtually no refugees from the Mideast turmoil have gone to Saudi Arabia, Russia and Iran. Unlike any previous oil crises, this one was man-made by tyrants.
However, all is not gloom and doom. Reserves, conservation and education are all bright spots. Just last week, Apache Corp. announced the discovery of the “High Alpine” field in West Texas with 75 trillion cubic feet of gas and 8 billion barrels of oil reserves. As a nation, we are blessed with reserves, some of which have been discovered and many of which have not yet been.
Hofmeister thinks that conservation and innovation offer a great deal of upside for the U. S. He projects that we will need 20 million barrels per day (bpd) in the future, but such levels of production are not economic at current prices. He thinks we can get 10 million bpd from current sources. Consequently, he thinks prices will inevitably improve. However, his main point is that we can augment supply by 7-10 million bpd by using compressed natural gas, natural gas liquids, gas to liquid technology, biofuels and hydrogen for transportation fuel. This would require a significant investment in retail delivery infrastructure, but could make us self-sufficient. Further, he thinks we could even become a net exporter by pursuing these alternatives.
Educating the public about where energy comes from and the role it plays in making lives better is a real opportunity for the industry. Hofmeister feels that the American public is not innately anti-oil but rather confused. He believes that if people understood more about energy, they would be more favorably disposed. For example, Oklahoma is the only state in the union that includes fundamentals of where energy comes from and how it benefits society, in its public school curriculum. He faults the industry for shying away from engaging the public for fear of controversy.
Finally, Hofmeister concludes that while there are clearly problems confronting the industry, higher prices are inevitable, and the future is now!
Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide. Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.
