Dentons 2016 Energy Outlook Event
Special Envoy, Bureau of Energy Resources
Thank you for inviting me to speak today on this topic, which is obviously near and dear to my heart, not only as my professional responsibilities but actually something I wake up every day believing in. And that is the role of the United States in the energy revolution that we are going through and transformation that we’re going through around the world and the interconnection of energy and national security.
Now that’s not a new phenomenon, that interconnection, but I think it has been more significant and more clear in the last few years and increasingly so than it has been probably since the early mid-70’s when we went through the Arab oil boycott. And that’s what I want to talk about a little bit today.
To put it simply, the United States is the world’s energy superpower. That’s as simple as I can put it. Now, the question becomes, why are we that superpower and what makes us a superpower in energy? And that’s in oil, gas, and renewables across the board.
In just the past few years the United States emerged as the leader, as we just heard, in oil and gas, but also in solar, geothermal, and wind. We are setting groundbreaking energy efficiency standards for the transport, buildings, and industrial sectors. We are also a leader in research and development of innovative energy technologies, and we are pioneering the business models and financial tools that enable technology deployment, not just the innovation itself.
The investment in renewables in 2015 alone in the United States was $56 billion- the highest it’s ever been. The United States now produces more petroleum than Saudi Arabia and more gas than Russia. That would have been unfathomable just a couple of years ago.
In the past 8 years, solar power generation is up more than 20 fold, and wind power has more than tripled. $58 billion is saved in the United States annually by utility customers due to energy efficiency standards. Any way you look at world energy the United States is the leader and the world is looking to us for leadership. To understand the broader energy changes underway, the worst thing one can do is to do what Clint warned us of earlier today- and that is, listen to prognosticators, projections, and analysts. We should listen to them as they are more accurately reflecting todays thinking about energy. But as far as predicative power, I would suggest you look elsewhere – or don’t.
We talk about today: lower for longer, and that’s what most analysts today write about, except for those analysts who say we’re going to be at $100/barrel in a couple of years. So, you can take your pick. One investment bank in 2014 wrote a note to its clients, and this is one of the largest banks in America, that “$100 is the new oil price floor” for the future. This was, I believe, in May of 2014. “$100 is the new floor for the future; we’re never going below $100.” And that was backed by significant data, it wasn’t just a statement. Obviously we hit $26-28 a few months ago, and just in the last six months, we went from $28 to $58, yesterday we spent a few hours at $39. So that just shows you where we are as far as the volatility in oil prices and the predictability of oil prices.
And if I could predict the oil prices and come here today and give you what I think the oil prices are going to be, I would probably not be working at the State Department, I’d be working elsewhere. But there’s one thing I can be certain of, that the projections of both financial analysts and oil company executives are not maliciously wrong, but they are wrong. And can make the case for either scenario. And that’s because if you look at the data for supply and demand, as it is, you can reach a certain conclusion- that over the next five to ten years we’re going to see a creeping increase in oil price because we are going to come back into balance and demand will continue to grow and outpace supply.
But it is also true that the national security events, accidents, and other kinds of interruptions that can happen in the middle are not being taken into account and cannot be taken into account. But it’s also true that we are no longer in that same landscape that we were before of a linear narrative.
What Clint showed before in some of his slides, are all of these game-changers that are happening right now. The world has changed. And I think that the fundamental change that we’ve seen is this interaction between the hydrocarbon industry and the renewable industry, with some new innovations that we already know are coming, like storage, we just don’t know exactly when and in what shape.
And that is what is going to create this tension of the predictability of oil and gas pricing, as we really do not know what that future is, what efficiency is going to lead us to, and how can we do more with less, and what is demand. When people talk about the demand coming into balance with supply, that’s in the short term. But where we are on the long term of supply and demand is going to be far more dependent on what does happen with renewables, what happens with storage, how long can they go without depending on a baseload. That is going to be probably gas in most cases.
Here in Washington I think we are the last city on the planet, in Washington, D.C., where we still talk about fossil fuel versus renewables as some kind of zero sum game. It is not one or the other, it is going to have to be both because we are going to need the baseload and we are going to need fuels that will transition us to that future. How long that transition is- I don’t know. But it is going to be a considerable amount of time.
Now when we talk about investments, and we talked about the $56 billion, just remember, nobody is making $56 billion investments in renewables based on ideology. It’s based on economics and they’re all expecting to make a return on it. So it is no longer the discussion of DC of renewables, if you’re talking about renewables you’re here as conducting a war on hydrocarbons and it is not that I’m trying to kill the climate because I talk about gas when I walk around the world.
Both are economic and both are necessary-one for the other. And look, the world changes are clear.
You know a few years ago the world stopped everything it was doing whenever the oil ministers met at OPEC in Vienna and we all waited with baited breath to see what the wise men- I’m so used to saying wise men and women-but it’s the wise men that say would say what they would say in Vienna. That’s not the case anymore. It’s more important what happens here, in the United States and more broadly in the Americas, than what’s happening in Vienna and OPEC, and that’s a significant change. That’s part of the emergence of the United States as a superpower.
But we have to understand what’s happening- to look a little bit further into the shale revolution in the United States that made this happen and made all this possible. Washington County in Pennsylvania is as important as Washington, D.C., or far more important when it comes to gas. That’s why recently we sent 20 young American diplomats to Washington County, Pennsylvania as part of an energy training program. The Marcellus production is at 18 billion cubic feet per day. If you want to understand global energy markets, you’ve got to look at the shale-oil revolution in North Dakota, where some members of my team are going to be flying out to North Dakota, to Bismarck, tonight. That’s not a normal destination for the State Department, or for diplomats of the State Department to go out, in North Dakota. But if you want to understand the role that we are playing in the world and want to understand the way the rest of the world is looking at us, you have to go there.
Today, just to give you a little bit of a sense, the state of Pennsylvania produces as much gas as China, as much gas as Norway and Saudi Arabia. Texas produces 3.2 million barrels of oil per day. That’s more than in Kuwait, Mexico, or Brazil. And North Dakota produces 1 billion barrels a day, that’s more than Azerbaijan and more than Colombia.
But if I asked a question in this room; what’s the state that is leading the United States in renewable energy? Usually the answers I get are Oregon, Washington State, Vermont, Maine, you know why? Because think about what I said a minute ago. Everybody thinks this is about ideology- everybody thinks this is about politics, right versus left- it’s not. It’s about economics. And that means that Texas is the capital. The oil capital of America is also the capital of renewable energy, and if you think about it, they’re producing wind power at 53 gigawatt hours annually- 25% of all U.S. wind is in Texas. It’s the 6th in the world in installed wind capacity, right behind Spain, and I believe that they will overtake Spain very soon since we have 20 new wind farms under construction in Texas alone.
That power is wheeled to Austin or Houston on a grid that is now at times powered primarily by wind, and in March we had a day where wind provided 48% of Texas electric power. In Washington, D.C. if you only listen to the debate we are having in this city, that’s not possible, because “Texas is oil” and wind obviously doesn’t go with oil. It’s just not true, and everybody knows it outside of Washington. California is the leader in solar with over 10 gigawatts of installed capacity and the 6th in the world in installed solar capacity.
So it gets back to the same premise I made earlier, at the end of the day we are a superpower because we have the best innovation in the world and because we’ve been able to marry both a growth in hydrocarbon, where we are creating far more growth in oil and gas, at the same time, that we are creating growth in renewable energy- and they go together. But what does this mean- I’m at the State Department- why does the State Department get involved in these issues? I’ll get back to where I started- because of the interconnection between energy and national security. And it’s so clear today. Let me tick off a few examples.
I joined Vice President Biden in 2014 when we launched the Caribbean Energy Security Initiative. Now why were we spending so much time- and the Vice President is taking so much of his time- to look at the Caribbean and Central American energy security. But if you think about it, Venezuela has used Petrocaribe as a scheme, a financial scheme, to leverage supply in oil and fuels with loans that indebt all of these countries in order to leverage that for political benefit, to exact their leverage for political decisions throughout the Caribbean-our neighbors.
Now this is, you’re talking about a string of island states that have 12 months of sun, many have wind, some have geothermal, some have scale in size for natural gas, and yet the vast majority are 100% reliant on dirty fuel oil from Venezuela. That makes no economic sense and it makes no political sense. So we have to engage with this region in order to be able to bring about that kind of transformational change to renewable energy and natural gas- where they have the scale, where they’re sitting next door to the largest gas provider in the world with the best prices in the world.
In Europe, Russia uses energy as its #1 political leverage. As a result of the infrastructure legacy of the Cold War, you have two Europes when it comes to energy - it’s not one continent. And the EU is far from being united when it comes to energy. A portion of Europe is 100% reliant on Russia for natural gas today and will be into the future unless we make a change. That is why Russia is willing to invest tens of billions of dollars to build new pipelines to connect that same region, to take the same gas to the same consumers, through new pipelines, even when some already exist, in order to continue that linkage and dependency. Why?
Because as heads of state after head of state will tell me, the President of the United States, and will tell the Secretary of State and the Vice President: “If you don’t fix my reliance on that nexus, there’s nothing I can do for you. They control my economy.” And yet that is why the EU created a position, the Vice President of the European Union for Energy Union, not because there is one, but because there isn’t one. And that’s why we hear about “Nordstream,” and “Southstream” and “Turkstream”: essentially if you hear the word “stream”, we should be worried. That’s essentially where I am. Now that’s on the negative side.
But in the eastern Mediterranean, where we’ve seen discoveries in Israel and Cyprus, and new discoveries announced in Egypt, we have an opportunity to use energy as a common denominator to bring countries together to be more and more interconnected, integrated and to create more prosperity and security in the region by doing that.
That’s why you are starting to see the developments that are marrying the energy movements ahead with the geopolitics of the eastern Mediterranean, and normalization between Israel and Turkey, a cold relationship between Israel and Cyprus for the first 50, 60 years of their existence and now a very warm relationship, new discussions between Israel and Egypt, between Cyprus and Egypt and with the goal that we have-the United States has been in the center of trying to encourage these kinds of conversations for the last five years because we see not only the gain for prosperity, but for national security as well.
So from East Africa to the Americas, we’re looking at encouraging that kind of infrastructure and development. That’s why I wrote an op-ed in Singapore in order to encourage an LNG hub development, so we can bring that kind of interconnected and integrated approach to Asia as well.
But let me end where I started. In this room, if you’re in this room today, you care about energy; you think it’s important, and you probably know it better than I do. Never before have we seen that linkage between energy and national security and if you read the pages of the Financial Times and European papers, it’s on the front pages every day. Not so in the United States. We still as a country do not understand neither our own position in the world in energy, nor the importance of the interconnection to energy security.
And what I keep saying- it’s important- even if we don’t want to believe the things that I said, we have to understand that the rest of the world sees us that way. They already see us as that leader in energy, and they yearn for our leadership in this and they want us to continue under that path.
I want to again thank you all for inviting me here today. I think that this is an enormously exciting time in energy, I think it’s the most exciting time in energy, and to be able to represent the United States as its chief energy diplomat as Emma called me, for the last several years, I could not have picked a better job at a better time in history to be able to do that. So again, thank you very much.