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By Mark Golden
The United States’ culture of entrepreneurialism, ingenuity and resilience will help its energy industry rebound from a COVID-related economic downturn, according to Donald Evans, who was U.S. Commerce Secretary during President George W. Bush’s first term. That culture could also help the country lead the fight to reduce energy poverty globally, while limiting greenhouse gas emissions, Evans added.
Oil and gas prices were relatively low before the pandemic struck, but lower demand over the past six months sent petroleum prices briefly into negative territory, with sellers paying buyers $36 a barrel to take their crude oil. The session’s guest interviewer, Tom Stephenson, who co-chairs the Hoover Institution’s energy policy task force at Stanford, asked about the pandemic’s impact on the energy industry.
“There are layoffs occurring or early retirements just across the board, so the pain is out there. It’s real,” Evans said from his home in Texas as the guest of Stanford University’s Global Energy Dialogues on August 18. “But, it's all short-term for the industry. The industry will be back. It will be back stronger, though probably leaner in some ways.”
He also noted that the pandemic has highlighted the importance of electricity in keeping the world connected and maintaining much economic production.
Evans has been through several energy boom-and-bust cycles since his job working on an oil rig in 1975 for Tom Brown, Inc., a large independent producer. In 1985, Evans became chief executive of the company. Even with the turbulence of the OPEC oil embargoes in the 1970s in the rearview mirror, Evans went on to witness oil price busts in the mid 1980s, early and mid 1990s, early 2000s and the huge drop in 2008 due to the global recession.
Back in private life in Texas, Evans has watched the United States turn from being a large importer of oil to an exporter of oil and natural gas due to the advances of hydraulic fracturing and horizontal drilling. After private-equity titans Kohlberg Kravis Roberts & Co., Texas Pacific Group and Goldman Sachs bought electric utility TXU Energy in 2007 for an eye-popping $48 billion, they made Evans chairman of the board. The buyers thought high natural gas prices would boost demand for, and the price of, electricity.
About a year after the acquisition, though, the technical advances known as “fracking” began to oversupply the North American natural gas market. That, combined with the recession that started in 2008, sent natural gas prices down about 75 percent. Energy Futures Holdings filed for bankruptcy reorganization in 2014, which eventually wiped out the equity investors’ stakes.
“They bought it for $48 billion,” Evans said. “The assets after they went through bankruptcy were worth somewhere between $25 and $30 billion.”
That bankruptcy aside, Evans credits soaring North American natural gas production with displacing coal-fired power generation. That, combined with wind and solar power, has lowered greenhouse gas emissions from the electric industry to the level of the late 1980s.
“We’ve got more to do, but it's just an incredible story,” Evans said. “Now we need to take advantage of it and lead the world toward a cleaner, better, electricity provided environment for the world.”
He expressed regret about the deterioration in U.S.-China relations the past several years, because that hurts the United States’ ability to work with China in this area and others.
Energy poverty vs. climate change
Jordan Conger, a student at Stanford’s Graduate School of Business, noted that many in the environmental community perceive fossil fuel companies “as the enemy.” He asked Evans what role the global oil and gas companies should play in the transition to a more sustainable energy system.
Evans said they are already helping by replacing coal with natural gas, but that they need to do more in carbon capture and sequestration. At the same time, he said that energy poverty – which underlies poverty in general – is also a very important human problem. Exporting the technologies that would enable developing economies to build gas-fired power plants instead of the coal-fired plants they are building today, along with investment in wind and solar power, Evans said, would help alleviate energy poverty and reduce emissions.
“We can't sit here and say the oil and gas guys are bad, and we got to have a bunch of windmills and solar, and we're going to solve this problem in the next 15 years,” Evans said. “That's believing in the tooth fairy, and that doesn't help anything.”
Relaying questions from the session’s audience, Prof. Arun Majumdar, who with Prof. Sally Benson is co-host of the Global Energy Dialogues and co-director of Stanford’s Precourt Institute for Energy, asked what the United States should do domestically on climate policy before leading the world on the topic. Majumdar specifically cited a carbon tax promoted by Tom Stephenson and George Shultz.
Evans said he has supported a carbon tax for 20 years, because generally if you want people to use less of something, charging more for it works. However, he noted the difficulty in passing such legislation.
“When it comes to energy there's just, you know, enough senators out there, enough congressmen out there, that maybe it’s a good idea, but they can figure out ways to block it,” Evans said.
Benson asked Evans what he thought about the rollback of President Barack Obama’s regulations to reduce methane leaks from the natural gas and oil industries.
“I think we need to get control of it. We ought to be working aggressively,” said Evans. “We know how to eliminate methane emissions.”
Despite the reversing of federal methane rules, Evans assured that energy company executives understand the problem and are reducing methane leaks.
“That policy, that attitude is actively being pursued,” he said. “You'll see them come down dramatically in the months and years ahead. It’s an important goal for the industry. I have no question about it.”
At the next Global Energy Dialogues session on Sept. 1, Sumant Sinha, chairman and managing director of ReNew Power, and Lei Zhang, CEO of Envision Group, will discuss China and India’s impact on the global energy transition. Global Energy Dialogues are free and open to all. Registration is required.
The Global Energy Dialogues are funded by the Stanford Global Energy Forum.