TRANSCRIPT: THE PATH FORWARD: THE FUTURE OF ENERGY WITH CHEVRON CHAIR & CEO MICHAEL WIRTH
By Washington Post Live
MR. IGNATIUS: Welcome to Washington Post Live. I’m David Ignatius, a columnist for The Post. Today in our continuing series The Path Forward, we’re joined by Mike Wirth, the CEO of Chevron, one of the world’s largest oil companies. We’re going to talk about the future of energy, his business. Welcome, Mike. We’re pleased you could join us.
MR. WIRTH: David, it’s a pleasure to be here.
MR. IGNATIUS: So we’re going to talk about new technologies, the ways you’re trying to get involved in carbon reduction in a moment. But I want to begin with some basics about the global energy market. Crude oil futures have roughly doubled since their lows last year. They’re now just under $70 a barrel. And I’m curious whether you think that’s a sustainable level. The International Energy Agency just recently talked about a softening of demand as the recovery continues. What are you expecting, from your perspective, about prices?
MR. WIRTH: David, we’ve got a market that is really not in a state of equilibrium. Demand is returning but unevenly, and with a lot of uncertainty as the effects of the pandemic still are evident in many of the markets around the world. We’ve seen strong recovery and demand for gasoline and diesel fuel in most places, aviation fuel less so, particularly with international air travel being at a very low level.
And then on the supply side, there’s been a lot of investment withdrawn from projects that would deliver new supply, and the countries in OPEC and OPEC+ have pulled production back as well. And so there’s supply that can come back into the market readily and has been coming back steadily here over the past number of months. And then on the demand side, we’ve seen a recovery but also uncertainty. And so it’s a market really that is not in equilibrium, and I think it’s a difficult one to make projections about, because you have to make assumptions about both supply and demand that are very difficult in an uncertain environment like this.
MR. IGNATIUS: It was interesting that last week the Biden administration decided to urge OPEC to increase production, obviously concerned about rising prices. That occasioned some criticism from your industry–from the American Petroleum Institute which represents your industry–I think arguing basically here the Biden administration has been trying to reduce domestic production and now it’s calling for increased OPEC foreign production. What did you think about that announcement, and do you think that the Biden administration should be doing more to encourage production domestically?
MR. WIRTH: Well, I think, you know, like every other White House, this administration knows that affordable and reliable energy is essential to our economy. We’ve got a good recovery underway in the United States, and historically high energy prices have been a drag on the economy. And so I think what we saw was a recognition of that fact. Some of the discussion that you’ve seen does relate to the fact that the administration has fairly quickly implemented a number of policies on pipelines, on leasing, and has telegraphed an intent for more that would make it more difficult to invest in the U.S., to grow production. The U.S. had become the largest producer in the world in recent years. And I think the messages you heard were our industry is prepared to invest and create supply in this country. And so the call on other countries to meet our needs is one that we can meet ourselves, and I think that’s really what you heard from API and from some others.
MR. IGNATIUS: And I take it that was the position that you and your company would support, that we ought to do more to get domestic production up before we encourage OPEC.
MR. WIRTH: Well, look. It’s a global market, and so we need supply from all over the world to meet needs all over the world. But the–you know, the energy industry was a tremendous part of the recovery out of the last recession in 2008, has created a tremendous number of new jobs and economic strength. We’re seeing investment in manufacturing and other industries that is predicated upon readily available and affordable domestic energy, and we think that’s good policy for the United States.
MR. IGNATIUS: So as I say, I want to get to the energy alternatives to fossil fuels in a bit, but just staying with some traditional energy themes for the moment, I’m curious when you look at Chevron’s portfolio of upstream investments, what makes sense to you in this world, and what increasingly doesn’t? And I should mention that I just a few weeks ago was in Baghdad, Iraq, and talked to their oil minister, who said unhappily that he was seeing U.S. companies–ExxonMobil, Chevron, which had been investors in Iraq–reducing their commitments for the future. In your portfolio, what are you look for these days? What does your board of directors want you to be investing in?
MR. WIRTH: Well, look, we’ve got a strong and large traditional oil and gas business, and increasingly a growing new energies business, which I know we’ll talk about in a little bit. When you look in our traditional business, we want to have positions that are–that are at large scale so we can have economies of scale and efficiencies. We look increasingly for low-carbon positions, and we understand the carbon impact of all of our upstream operations now. A decade ago, we had many positions that were characterized by long investment cycles and very large, you know, tens of billions of dollars of capital investment. Increasingly, we’re looking for things that we can do in stages, that have flexibility in terms of capital investments. And certainly, in the United States with the shale and the Permian and other basins, they have tremendous flexibility in terms of ability to ramp up to meet needs but also, as we saw during the pandemic, to pull activity down to conserve cash. And so scale, flexibility, cost competitiveness, and low-carbon intensity are attributes that we look at in our portfolio around the world.
MR. IGNATIUS: So taking that final measure of low-carbon intensity, Chevron made an interesting announcement last month, that it was creating a new energy unit, as I read the news. And I’ll quote what you said in announcing that: “We believe that the dedication of resources and a new organization will accelerate growth in multiple business lines that we expect to be part of a lower-carbon energy system. So walk us through what that new unit is going to look like, what the kinds of investments you think are particularly attractive. I’m curious especially about investments in hydrogen, which on one level is very attractive but there’s been some skepticism recently about whether that’s a good investment. Just walk us through that new line of business.
MR. WIRTH: Sure. We believe the future of energy is lower carbon, and so we’re lowering carbon of intensity of operations in our traditional business and growing low carbon business lines. The announcement of Chevron New Energies is really intended to innovate from a position of strength, to invest in new technology aligned with skillsets that we have in our organization. We’re working with people like Toyota and Cummins and other equipment manufacturers to try to build out new hydrogen value chains, particularly for heavy duty transport. We are now working with agricultural partners in renewable natural gas, dairy farmers to capture methane that otherwise goes into the atmosphere and displace fossil fuel natural gas. We’re investing and now producing renewable diesel fuel in one of our refineries in Southern California, where we use soybean oil to produce renewable diesel and soon to be sustainable aviation fuel. And we’re working across a number of different partnerships on carbon capture and storage to find ways to take CO2 out of the air, out of combustion streams, out of production streams, and store it in the earth to reduce emissions. So these are all the things you should expect us to do. In a lower-energy future where the system is diversifying, so are we.
MR. IGNATIUS: I read that you said recently that although you’re making these significant new investments in alternative energies, that you expect that fossil fuels will continue to be in a kind of steady state of demand going forward. Am I reading that right, or expecting to see declines I’m thinking on the order of 2035 and beyond?
MR. WIRTH: Well, you know, the world runs on the energy system that we have today, and the entire global economy depends on the mix that we have today. And even as that mix changes, demand also increases. And if you look back at the history of energy beginning with biomass, wood, peat, going to coal, natural gas, oil and then as we introduced nuclear and hydro and wind and solar into the system, the system continues to grow, and there’s a place for all of these, and there certainly historically has been. We’ve never really seen any of these sources go down in terms of absolute demand. We’ve seen them reduce as a percentage of a larger energy system. And so the reality is, as you look at any credible forecast for the future, we’re going from 7 1/2 billion people on the planet to more than 9 billion over the next 20 years, energy demand likely to increase by 25 percent, and the traditional energies that we produce will be a large part of that system as it grows, even as we bring in these lower-carbon energies to diversify that system. So we do believe the demand for our products is growing slowly. It’s not growing as fast as demand for wind and solar. But the current demand is quite large, and it’s very difficult for economies to transition off of that as rapidly as some people would–you know, would suggest.
MR. IGNATIUS: So–and when you look at climate science documents and projections, is that essentially steady state continuing demand for fossil fuels consistent with the kinds of reduction in carbon emissions that are necessary to stabilize our global climate?
MR. WIRTH: Well, you know, there’s a recent report out of the IPCC, their sixth assessment report, and it has a number of different scenarios in there. And some of those show continued growth in demand for our products, and others show reductions in demand. The scenarios are just that. They’re modeled scenarios. And you have to look at what it will take in the real world to make those things happened. And it requires innovation. It requires technology development. It requires the mobilization of huge amounts of capital, and generally it will require significant policy actions by governments around the world–all of which we see signs of occurring, but not necessarily at the pace that some of the most aggressive carbon reduction scenarios would call for. And so it’s why I think engagement with policy makers is important. It’s why companies innovating and investing and trying to bring cost down is important. And it’s why having flexibility in your portfolio is important, because the future is uncertain, and we need to be prepared to meet the demand as it emerges. And nobody knows exactly what that pattern will look like.
MR. IGNATIUS: Let me ask about one particular part of your alternative new energy portfolio, and that’s hydrogen-related businesses. I mentioned that there’s a little skepticism emerging about that, and I’m thinking in particular of a report that was cited by The New York Times a week or so ago, that argued, if I understood it correctly, that hydrogen’s advantages are really limited by the fact that you obtain hydrogen from natural gas and natural gas production is fossil fuel production, is not the direction that we really want to be heading when we think about reducing carbon testing. What about that criticism?
MR. WIRTH: Well, there are different ways to make hydrogen. Today hydrogen as manufactured generally is manufactured from natural gas, and it’s an energy-intensive process. What is called blue hydrogen is a concept that would capture the CO2 emissions from that process and sequester them. So a lower greenhouse gas version of hydrogen than what is traditionally used today. And then there’s technology that’s referred to as green hydrogen, which would use water as the raw material and renewable power to use something called electrolysis to break apart the bonds of hydrogen and oxygen in the water and essentially create hydrogen and oxygen. It’s expensive. It’s not cost competitive today, but a lot of people are working hard to bring those costs down.
So these are examples of the kinds of things that people in academia, people in industry, people in startups with novel technology ideas all are working very hard at with the intent to make them lower greenhouse gas sources of affordable reliable energy. And I think it’s unwise to dismiss any of these ideas prematurely, as we have smart people working hard at solving these problems. So, you know, there’s no free lunch in here. The existing energy system is in place because it has met the needs of society in an affordable manner. And as we look for new technologies to displace that, they inevitably are going to bring with them greater costs and some tradeoffs. And I think we all need to be working together to evaluate those and try to find solutions that work for everyone.
MR. IGNATIUS: That’s a helpful answer and thank you for that. I want to ask you if you’d evaluate the Biden administration’s energy policies. Their position for curtailing oil and gas leasing is one key component. You mentioned earlier their position on the Keystone pipeline, another obvious one. Their commitment to the Paris Climate Accords process, getting ready for additional global agreements on climate is a third. Looking at that overall, what assessment would you make? What would you like to see more of? What would you like to see less of?
MR. WIRTH: Well, we’d like to see some increased engagement with our industry out of the administration. There had been some high-level discussions, but I think we need more. We bring tremendous experience and capabilities and expertise to these discussions. And for, you know, all of our company’s history we’ve worked with administrations from both sides of the aisle to try to help meet their economic, energy, and environmental agendas. There are ways that we can help reduce greenhouse gas emissions. The Gulf–Deepwater Gulf of Mexico, emissions intensity of production there is some of the lowest in the world. I recently visited some of our operations in Eastern Colorado, which are even lower than that. And so there are ways to bring domestic energy into the market and have low greenhouse gas intensity associated with that, lower than with some of the energy that could be imported from around the world. So we’d like to engage in discussions about how we can work together to invest, to create jobs, to responsibly develop energy resources, and keep our country strong economically, strong from an energy security standpoint, and meet the objectives of the administration. So more engagements and I think a constructive view of how we can be part of the solution is what I’d like to see.
MR. IGNATIUS: I want to ask you about electric vehicles. On this series of programs, we had the president of General Motors not long ago talking about electric vehicles. They’ve made a huge commitment. They really see this as their future as a company. And I’m very curious what you think about the electric vehicle market, how quickly it will come on, what the obstacles are to rapid adoption of electric vehicles. And I’m curious, just on a very practical level, Chevron has gas stations, as we–as we lovingly refer to them. How are they doing in the charging business as we move toward electric vehicles, and are you planning to put more money into that so that a Chevron station’s a place to charge up your vehicle, whether it’s a Tesla or a GM vehicle? Speak us–speak to us about the EV market issues.
MR. WIRTH: Sure. So, you know, EVs are something that we’re familiar with. It’s an evolution, not really a revolution. This technology has been emerging for years. We’ve seen decades of policy support here in California where our company is headquartered and our planning would anticipate hundreds of millions of electric vehicles would be in use in the next 20 years, versus only about 10 million at the end of 2020. It’s important to remember that only about 25 percent of a barrel of oil ends up in light-duty vehicle transportation in cars. The remainder, 75 percent ends up in heavy-duty transportation in trucks. It ends up in marine transportation, in ships. Aviation fuels for airflight, petrochemical production. So there’s a whole range of products and contributions to the economy that come from our product, not just in vehicles. So even as we see electric vehicles penetrate–as I said earlier, the economies are growing and demand is growing overall. So I think there’s room for all of the above.
When you get right down to what are some of the barriers, range has been a challenge, and cost has been a challenge. Now both of those have become much better here in recent times, and companies like GM and others continue to make progress on battery technology and scaling up their business. So these are–these are improving.
Refueling points, it’s a little bit different than an internal combustion engine where you don’t have a gas line that comes into your house, a gasoline line. And so much of the charging infrastructure has focused on people charging at home or charging at work, and that can meet much of the needs. But then you will need a network of charging for some top-ups, if you will, on electrons when people are in between. We’ve got charging at some of our stations today, and I think we’ll see more of that as we move into the future. There are issues. The charging time is different than the refueling time for an internal combustion engine. You’ve got to think about how many vehicles you’ll have on site. Where will they be? How does traffic flow? There’s a lot of details at that level that need to be worked through. But we’re not fundamentally opposed to EVs or putting chargers in our stations. We think there’s room for all of that. We’d like to see, you know, kind of technology-neutral, economically competitive products offered to consumers, and consumers will make wise choices.
MR. IGNATIUS: Your company, I believe, is based in California where the governor, as I read it, outlawed gas cars by 2035. Is that position realistic? And what would that kind of legislative requirement–a ban, really–mean for your company?
MR. WIRTH: Well, you know, the governor’s asked the California Air Resources Board–so the regulator in the state–to evaluate the technical and economic feasibility of an action like that. It’s a process that will take time. There will be public consultation. I think there will be a lot of dialogue on just the topics you ask about, David. And the reality is, California today has had its challenges in providing enough electricity during certain times of the year to keep the lights on. And so we’ve had the beginning of rolling brownouts and outages, with today’s demand for electricity. We’ve got another nuclear power plant in the state that is scheduled to be taken out of service, which provides a large contribution to the state’s electricity today. And adding that much demand at a time when grid stability and storage are still issues that are being worked and the–you know, the affordability of these vehicles for not people who have, you know, high incomes but really for people who do most of the work in the state is still a challenge. And so I think there’s a number of both technical and economic issues that will emerge in this dialogue that will bring some reality to the ambition and I think inform ultimately what actions the state of California will take.
MR. IGNATIUS: Let me ask what may be a final question as we’re near the end of our time. If you were talking to a young energy activist, somebody who feels passionately about climate change and who thinks that traditional energy companies like yours are the problem, what would your answer be to that person? Because there is a movement now to disinvest from companies like Chevron, like ExxonMobil. And I’m sure you feel the pressure from this movement as a big part of your business. How would you answer that criticism as CEO of Chevron?
MR. WIRTH: Well, I actually get the opportunity to do that. We have several hundred interns working for us this summer, many of whom have activist ideas and are like the young person you describe. And so I interact with them as part of their time with us. And my message to them is simple. There’s never been a better time to join an industry like ours and to help create the energy future that we all desire, which is one where energy is affordable for people, it supports economic growth, it has less environmental impact. And we’re investing, as we discussed earlier, in these new energy technologies. We’re investing in finding ways to reduce the impact of the energy system today. We’re looking at ways to take CO2 out of the air, which the most recent IPCC report has flagged as essential if we are going to reach the ambitions of the Paris Agreement.
And so we’re an industry that has and we’re a company that has a 140-year history. We have the financial strength, the engineering capability, the technology capability, the project management expertise of few organizations in the world. And we are committed to being part of a lower-carbon energy future. And so I implore young people to join us, to bring their ambition, their aspiration, and their creativity and skills to help us deal with these big challenges and create a better future. And that’s what I would tell somebody who wasn’t an intern, and it’s certainly what I say to the young people that we have working with us this summer.
MR. IGNATIUS: Let me ask you a final question. It’s one we put to just about every guest we’ve had on this series about the future, coming out of the pandemic, and that is, how has the pandemic changed your business? How will you be different as a company because of things you did to respond to this extraordinary health crisis and an economic crisis?
MR. WIRTH: Well, the last 18 months have really shown the–you know, the resilience and the importance of energy to the economy. We saw demand drop as the economy locked down, but then we’ve seen it really spring back. And so I think it reinforces how important energy is to the global economy. It’s changed us in a few ways. I would say the biggest is it’s accelerated digital innovation that was underway. But as we’ve been forced into working differently, some of our digital capabilities have really accelerated. I’ll give you an example. In our Permian and other unconventional development, we drill down vertically into the earth, and then we turn the drill bit, and we drill horizontally for a couple of miles in a relatively narrow band. For a long time, all of that was controlled on the drill rig. A couple of years ago, we brought that into a central drilling support center, where we can help steer the drill bit and keep it in a very narrow range from a control center. Think–you know, it’s in Houston, so think kind of mission control like. We’ve got people doing that now from their homes. We’re using augmented reality to troubleshoot things on offshore platforms where an operator can be wearing a special set of lenses and a headset, and a subject matter expert halfway around the world can be talking to them and seeing the same things and solving things that we used to fly somebody out to an offshore platform to solve. We’re using drones to do inspections now that we used to bring people out and have them climb large structures or tanks or get out into the field, and we now have drone-mounted cameras and methane sensors that we’re using to get high-quality data and to integrate it digitally in ways that we wouldn’t have before. So I would say those are some of the examples of things that have changed us and will change our business going forward and I think make us much better.
MR. IGNATIUS: Those are fascinating examples. I want to thank you, Mike, for joining us, for helping us to see how the world looks from the eyes of the CEO of one of the world’s largest energy companies. Thanks for being with us today.
MR. WIRTH: David, it’s my pleasure. I appreciate your time.
MR. IGNATIUS: So thanks to everybody as always for watching Washington Post Live. To check out the interviews we have coming up, please head to WashingtonPostLive.com to register and find out more information. Thanks for joining us this afternoon. We’ll see you soon.