Path Home Shows 2012 Show Archive May 2012 Show 1220 2012 OSU Energy Conference - CNG vs. Gas

2012 OSU Energy Conference - CNG vs. Gas

A growing number of individuals are making the switch to vehicles that run on natural gas, the cleaner burning fuel. We visit with Aubrey McClendon the CEO of Chesapeake Energy, a company whose ups and downs have been tied to natural gas drilling.
2012 OSU Energy Conference - CNG vs. Gas

Aubrey McClendon, Chesapeake Energy CEO

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2012 OSU Energy Conference
Chesapeake Energy

Show Dates

Show 1220: 2012 OSU Energy Conference - CNG vs. Gas

Air date: May 13, 2012

 

Transcript

ROB MCCLENDON:  WELL JUST OVER 1% OF THE 13 MILLION VEHICLES IN THIS COUNTRY ARE RUN ON NATURAL GAS; MOST OF THESE IN LARGE FLEETS OWNED BY INDUSTRY AND MUNICIPALTIES.  YET A GROWING NUMBER OF INDIVIDUALS, ALBIET A SMALL NUMBER, ARE MAKING THE SWITCH TO THE CLEANER BURNING FUEL.

WHEN IT COMES TO SOLVING OUR COUNTRY’S DEPENDENCE ON FOREIGN OIL, THERE’S BEEN NO SHORTAGE OF SUGGESTIONS.

SUGGESTIONS:  WIND TURBINES, NUCLEAR ENERGY, SOLAR, BUYING ENERGY EFFICIENT WINDOWS, ENERGY EFFICIENT HOMES, HYDRO, AMERICAN COAL, SOLAR HOMES, ETHANOL NOT JUST FROM CORN, ATOMIC POWER, WOOD CHIPS AND STALKS OR SWITCHGRASS.

ROB:  MOST VIABLE, BUT ALL FAR FROM REALITY; UNLIKE NATURAL GAS, THAT IS BOTH ABUNDANT AND INCREASINGLY AVAILABLE.

FEMALE VOICE:  I’VE HAD MY CNG CAR FOR ABOUT A YEAR AND A HALF NOW, I ABSOLUTELY LOVE IT; HAVEN’T HAD ANY PROBLEMS.  IT’S GREAT FOR THE ENVIRONMENT AND I PAY $1.39 A GALLON.

ROB:  AND NOT ONLY LESS THAN HALF THE PRICE OF GASOLINE, BUT ALSO A MUCH CLEANER BURNING FUEL.

FEMALE VOICE 2:  I’VE HAD MY CNG FOR ABOUT A YEAR AND A HALF AND IT’S GREAT, I LOVE IT, IT COSTS ME ABOUT $8 TO FILL UP AND LASTS ME THE ENTIRE WEEK; SO, ON AVERAGE I’M SPENDING ABOUT $8 A WEEK ON, ON NATURAL GAS TO GET AROUND.  YOU KNOW, EVERYONE ASKS ME ABOUT MY CAR AND THEY, THEY ASK AND THEY, THEY, THEY SAY, YOU KNOW, HOW MUCH DOES IT COST YOU TO FILL UP?  AND YOU KNOW, I’M LIKE, IT’S LIKE A $1.39 AS OPPOSED TO $4 ON THEIR END.

ROB:  SO IF CNG IS BOTH CHEAPER AND BETTER FOR THE ENVIRONMENT, WHAT’S THE HOLD UP?  THAT COMES DOWN TO JUST ONE WORD, INFRASTRUCTURE; WHICH WAS MUCH OF THE TALK AT THE SIXTH ANNUAL ENERGY CONFERENCE SPONSORED BY OKLAHOMA STATE UNIVERSITY.

WITH NATURAL GAS PRICES THEIR LOWEST IN A DECADE, INDUSTRY OFFICIALS AGREE THEIR LARGEST CHALLENGE RIGHT NOW IS SURVIVING THE GLUT OF NATURAL GAS NOW IN THE MARKET; AND HARDEST HIT, CHESAPEAKE ENERGY.  STOCK PRICES HAVE DROPPED MORE THAN 18% SINCE MID-APRIL FOR THE OKLAHOMA CITY BASED COMPANY, WHEN RUETERS REPORTED CEO AUBREY MCCLENDON SECURED UP TO ONE POINT ONE BILLION IN LOANS BY USING HIS STAKE IN THE COMPANY AS COLLATERAL.  NOW I WAS ABLE TO SIT DOWN WITH THE CHESAPEAKE CEO WHOSE OWN FORTUNES HAVE BEEN TIED, AS WELL AS THOSE OF HIS COMPANY, TO THE UPS AND DOWNS OF NATURAL GAS EXPLORATION.

AUBREY, WITH THE PRICE OF NATURAL GAS AT A 10 YEAR LOW, IS YOUR INDUSTRY, IS IT A VICTIM OF ITS OWN SUCCESS?

AUBREY MCCLENDON:  FAIR QUESTION; AND I GUESS, A LITTLE BIT.  I MEAN, REALLY TODAY WE’RE A VICTIM OF THE WARMEST WINTER IN 100 YEARS AND THAT’S TAKEN ABOUT 4% OF ALL YEAR LONG NATURAL GAS DEMAND OFF THE MARKET.  SO, I THINK REALLY TODAY, WE HAVE GAS PRICES BETWEEN $3 AND $4 RATHER THAN AROUND $2 TODAY.  SO, WE NOW HAVE THIS SURPLUS THAT WE DIDN’T BURN THIS WINTER, WE’VE GOT TO WORK IT OFF THIS SUMMER.  SO I THINK 2012 WILL BE A PRETTY TOUGH YEAR FOR NATURAL GAS PRICES; BE GREAT FOR CONSUMERS, BE GREAT FOR BURNING INTO PEOPLE’S MINDS THE VIEW THAT NATURAL GAS IS ABUNDANT AND IT’S AFFORDABLE.  BUT, THERE HAS TO BE SOME RETURN TO THE PRODUCER AND RIGHT NOW AT $2 THERE’S NOT THAT RETURN.  BUT SO, I THINK YOU KNOW, IN THE NEXT YEAR OR TWO WE’LL CERTAINLY SEE A RETURN TO PRICES THAT ARE GONNA BE MORE ACCEPTABLE, THEY’LL STILL BE GREAT FOR CONSUMERS, BUT GOOD FOR PRODUCERS AS WELL.

ROB:  SO ARE YOU FRUSTRATED THAT WE’RE NOT USING MORE NATURAL GAS?

AUBREY:  OH, WELL SURE; RIGHT NOW I WISH THERE WAS SOME MAGIC NEW INDUSTRY THAT COULD SOP UP ALL THIS EXCESS SUPPLY FROM THIS WINTER.  BUT ACTUALLY, WHAT YOU HAVE TO DO TO INCREASE DEMAND IS YOU HAVE TO INCREASE SUPPLY FIRST.  I COULD NEVER CONVINCE YOU TO GO BUILD A NEW POWER PLANT TO BURN NATURAL GAS IF I DIDN’T HAVE YOU CONVINCED THAT THERE WOULD BE MORE NATURAL GAS FOR YOU TO BURN.  SO, WE’VE NOW TAKEN THE LAST FIVE YEARS AND FULLY ESTABLISHED THAT AMERICAN NATURAL GAS IS ABUNDANT AND AFFORDABLE, AND NOW WE’RE IN A PHASE WHERE THE DEMAND KICKS OFF.  AND, IT’S NOT JUST THAT WE HAVE A BETTER PRODUCT FROM AN ENVIRONMENTAL PROSPECTIVE, IT’S NOT JUST WE HAVE A PRODUCT THAT’S DOMESTICALLY MADE RATHER THAN INTERNATIONALLY MADE, IT’S NOW ABOUT ONE-TENTH THE COST OF OIL.  AND SO, WHEN YOU HAVE SUBSTITUTIVE PRODUCTS YOU’RE GOING TO SEE THE SWITCH MADE.  AND SO, IT’S ALL HAPPENING; IT’S GONNA PLAY OUT FOR THE REST OF MY LIFE, THE REST OF YOUR LIFE.  IT WILL ACCELERATE OVER THE NEXT COUPLE OF YEARS AS A RESULT OF THIS PECULIAR SITUATION THAT WE’RE IN WHERE YOU HAVE $2 NATURAL GAS AND $100 OIL THAT’S THE EQUIVALENT OF $12 OIL IN THE NATURAL GAS SIDE AND A $100 ON THE OIL SIDE.

ROB:  SO COULD AMERICAN NATURAL GAS, COULD IT REVITALIZE OTHER AMERICAN INDUSTRIES, SAY LIKE MANUFACTURING?

AUBREY:  IT’S ALREADY HAPPENING.  TODAY, IF YOU LOOK AT MANUFACTURING EMPLOYMENT IN THE U S, IT’S CONTINUING TO GO UP.  IF YOU LISTEN TO THE CEO’S OF COMPANIES LIKE U S STEEL, OF DOW, DUPONT, ALL OF THESE GENTLEMEN ARE SAYING THEY’RE MOVING BUSINESS BACK TO THE U S, THEY’RE HIRING; THEY’RE EXPANDING; THEY’RE GROWING; THEY’RE MAKING RECORD PROFITS.  AND, A AS A CONSEQUENCE OF WHICH WE NOW SEE AN INDUSTRIAL RENAISSANCE IN THE U S BEGINNING TO TAKE SHAPE; AND WE HAVEN’T SEEN THIS.  WE’VE BEEN DE-INDUSTRIALIZING AMERICA FOR THE LAST 40 YEARS; AND SO, IT’S NOT GONNA TURN AROUND OVER NIGHT.  BUT THIS A VERY, VERY IMPORTANT NEW TRENT IN OUR ECONOMY; AND BY THE WAY, THERE’S ANOTHER FACTOR AS WELL, WHICH IS IF YOU ARE MANUFACTURING SOMETHING MADE FOR THE AMERICAN MARKET IN CHINA TODAY, WHAT ARE YOU FACED WITH?  WELL YOU’RE FACED WITH RISING COSTS IN CHINA, BUT YOU’RE ALSO FACED WITH RISING TRANSPORATION COSTS AS WELL, BECAUSE IT TAKES OIL TO MOVE YOUR PRODUCT FROM CHINA TO HERE.  SO, I THINK THERE’S GONNA BE LOTS OF REASONS WHY YOU SEE A SURPRISING UPTICK IN THE MANUFACTURING ASPECT OF THE U S ECONOMY, WHEN IT WAS PART OF THE ECONOMY PEOPLE HAD JUST WRITTEN OFF AND SAID, YOU KNOW, WE’RE JUST NOT GOING TO BEND METAL ANYMORE.  AND THE REALITY IS, WE ARE; AND WE’RE GONNA DO IT SMARTER, WE CAN DO IT CHEAPER THAN OTHER COUNTRIES AROUND THE WORLD AS WELL.

ROB:  COULD THE CURRENT DEBATE OVER HYDRAULIC FRACKING, COULD IT THREATEN THAT FUTURE YOU’VE JUST BEEN TALKING ABOUT?

AUBREY:  OH, I GUESS, YOU KNOW, THEARETICALLY IT COULD ROB, BUT THE REALITY IS WHEN YOU DIG DOWN IN THE FACTS, SOMEWHERE BETWEEN 90% AND ALMOST 100% OF NORTH AMERICAN NATURAL GAS COMES FROM A WELL THAT’S BEEN FRACKED; WHETHER IT WAS DRILLED 20 YEARS AGO, OR 10 YEARS AGO, OR LAST YEAR.  AND SO, BASICALLY THAT ARGUMENT ABOUT HYDRAFRACKTURING IS REALLY ABOUT WHETHER OR NOT YOU’RE GONNA HAVE NATURAL GAS OR NOT.  BECAUSE IF YOU SAY, I’M AGAINST THAT, THEN IT MEANS FOR COAL, YOU’RE FOR OIL, SO YOU CAN’T REALLY BE AGAINST HYDRAFRACKING AND SAY YOU’RE AN ENVIRONMENTALIST BECAUSE IMMEDIATELY THE DEFAULT OPTIONS ARE FUELS THAT ARE MUCH LESS CLEAN THAN NATURAL GAS IS.  AND, YOU ALSO BASICALLY ARE GONNA COME OUT AND SAY, YOU KNOW, I’M AGAINST FOOD BECAUSE ALL FERTILIZER IS MADE FROM NATURAL GAS AND I’M AGAINST HOME HEATING AND OFFICE HEATING AND ELECTRICITY; AND, 35% OF AMERICAN ELECTRICITY COMES FROM NATURAL GAS.  SO, IT’S AN ARGUMENT, OR DEBATE, THAT GETS A LOT OF INK, BUT IN TERMS OF ANY SERIOUS THREAT TO THE SUPPLY OF NATURAL GAS FROM IT, I DON’T REALLY SEE THAT.  IT’S JUST FRANKLY A MATTER OF, WHAT’S THE PROPER LEVEL OF REGULATION, WHAT’S THE PROPER TRANSPARENCY INTO WHAT WE DO?  AND I THINK WE’RE MAKING STRIDES ON BOTH THOSE FRONTS.  SO, MY HOPE IS, TWO, THREE, FOUR YEARS FROM NOW YOU’LL BE WELL INFORMED ABOUT WE DO AND HOW WE DO IT; BUT IN TERMS OF IT BEING SOMETHING THAT PEOPLE WANT TO ARGUE ABOUT, I THINK IT LIKELY WILL HAVE PASSED BY.

ROB:  AS A COUNTRY IT SEEMS THAT WE’VE GROWN QUITE ACCUSTOMED TO IMPORTING ENERGY INTO OUR COUNTRY; BUT, THERE’S THE DEBATE GOING ON RIGHT NOW WHETHER WE SHOULD EXPORT ENERGY OUT OF OUR COUNTRY WITH SOME OF THE CNG.  I WANT TO GET YOUR OPINION ON THAT.

AUBREY:  SURE; WELL IT’S SOMETHING WE ABSOLUTELY MUST BE ABLE TO DO.  SO LET’S THINK ABOUT WHERE WE ARE TODAY:  WE EXPORT GASOLINE; WE EXPORT DIESEL; WE EXPORT CORN; WE EXPORT WHEAT.  SO YOU CAN’T SINGLE OUT NATURAL GAS AND SAY SOMEHOW IT’S MORE IMPORTANT THAN ALL OF THOSE PRODUCTS AND SAY WE CAN’T EXPORT THAT.  I THINK THE SECOND NOTION TO REMEMBER HERE IS THAT WE ALREADY EXPORT NATURAL GAS.  WE EXPORT ALMOST TWO BILLION CUBIC FEET A DAY TO MEXICO, JUST AROUND A BILLION CUBIC FEET A DAY TO CANADA.  AND SO, WE ALREADY DO IT THROUGH PIPELINES; AND NOW THE QUESTION IS, CAN WE DO IT IN SHIPS?  AND WHY IT’S SO IMPORTANT TODAY, YOU SORT OF MENTIONED EARLIER ABOUT THE BOOM AND BUST, HOW DO YOU, HOW DO YOU KEEP AN INDUSTRY FROM ALWAYS BOOMING AND BUSTING?  WELL, WHEN PRICES ARE HIGH YOU HAVE A SO CALLED BOOM; WELL, WE HAVE THE ABILITY TO IMPORT NATURAL GAS INTO THE COUNTRY IN THE FORM OF LNG TODAY.  SO, IF PRICES GET TO HIGH COMPARED TO PRICES IN THE WORLD, THEN WE’LL IMPORT GAS AND IT’LL TURN, IT’LL TEND TO DAMPEN GAS PRICES AND PRESERVE DEMAND.  ON THE OTHER HAND, IN TIMES LIKE TODAY WHEN THERE’S TOO MUCH GAS IN THE MARKETPLACE, WHETHER THERE BE TOO MANY WELLS DRILLED OR NOT ENOUGH COLD WEATHER, WE NEED TO BE ABLE TO BALANCE THAT MARKET AND BE ABLE TO EXPORT GAS AS WELL.  AND SO I THINK HAVING A ROBUST, YOU KNOW, TWO-WAY EXPORT MARKET AND IMPORT MARKET FOR NATURAL GAS ALLOWS US TO OFFER MUCH MORE STABILITY TO NATURAL GAS PRICING FOR CONSUMERS.  AND AT THE END OF THE DAY, THAT’S BETTER FOR CONSUMERS AND IT’S BETTER FOR US AS WELL.

ROB:  GREAT INSIGHTS; APPRECIATE YOU BEING HERE.

AUBREY:  THANKS ROB; APPRECIATE THE OPPORTUNITY TO VISIT WITH YOU TODAY.

ROB:  WELL EARLIER THIS WEEK CHESAPEAKE'S LARGEST SHAREHOLDER, A MEMPHIS-BASED MONEY MANAGEMENT FIRM, URGED CHESAPEAKE ENERGY TO BE OPEN TO TAKE-OVER OFFERS.  BUT AS WE’RE RECORDING THIS, COMPANY OFFICIALS HAVE SHOWN NO SIGNS OF CHESAPEAKE CHANGING HANDS.  IN FACT, MCCLENDON SENT OUT A COMPANY-WIDE EMAIL ASSURING EMPLOYEES THAT THE COMPANY HAS OVERCOME MANY CHALLENGES IN ITS 23 YEARS; AND I QUOTE HERE, WE HAVE FACED MANY CHALLENGING TIMES LIKE WE FACE TODAY AND HAVE SUCCESSFULLY OVERCOME THEM AS WELL.  WE’LL KEEP YOU POSTED.