all right let's spend the less the rest of the time talking about energy that's a lot
on kind of setting the stage so this is a price versus volume graphic for oil around the world
the broader the bar the greater the volume of oil production and the taller the bar the greater the
cost of pulling it out of the ground opec is there on the far right u.s shale is on the far
left now back in 2012 that's this date is 2012. u.s shale was the most expensive crude
in the world very problematic to produce only could exist in a very high price environment
but since then we've had financial innovations changes in the way we drill micro seismic all
kinds of fun stuff and as of the dawn of the coronavirus pandemic here's where we were u.s
shale was the second cheapest crude in the world now for those of you who are in the oil sector
who are kind of like wait wait wait wait calm down this is break even full cycle so if you have like
a debt hangover 40 a barrel is not gonna cut it and as we've seen with coronavirus and the hiccups
in the financial system and changes to production schedules and changes in demand in the short term
we've seen a lot of consolidation in the industry as the larger players are emerging dominant
they have slightly lower operational costs but they also have more production discipline
and are less likely to engage in marginal production efforts so they can choose not to
produce when oil prices are lower and they prefer things to be at 50 or higher because they you know
want a profit margin what we're seeing with the new production coming online in 2021 and late 2020
is about at the rate that it was in 2018 to 2019 it's just that the the less wise production is
falling off so what comes online is higher output per well and wells that are likely to last longer
so sure yeah we're still down a million barrels a day or so but what's left is far more reliable
and far more profi far more profitable in addition because these larger companies are not
driven by cash flow concerns as they're first and foremost they're likely to drill a well frack it
link it up to the gathering infrastructure but not necessarily turn it on waiting for the prices to
be right so we still have a crack log that's at least a half a million barrels a day
and i have no doubt that if we had a price spike that lasted a few weeks
that we would see all of that come online as well as accelerated drilling and we would be back
to net independence in a fairly short period of time measured in weeks not even months
you can kind of get an idea of where that is from our production numbers here
the green excuse me the blue is crude the orange is condensate and the gray is peak to trough crude
oil was down about one fifth condensate about seven percent and ngls are actually up six percent
over this time so we're not that far down and the production profile that was most hit was the stuff
we were most likely to export so we really haven't had a change in energy security here
from a national power and a national security point of view i'm not overly concerned about this
all the baseline stuff seems to be in place or at least that's what i thought
until monday so i lived in texas for 20 years
and in that 20 years we got a grand total of two and a half inches of snow
obviously that number has been blown out of the water in the last few days we know for certain
that at least 25 of texas power generation is offline the number has probably been a little
higher know that roughly three three and a half million barrels of crude
has been offline with an equivalent amount of associated natural gas uh wow it's been a mess
and we know what this is going to mean for the energy sector moving forward
because look at where the power outages have been most intense
austin where's the government apparatus austin where are the railroad commissioners austin
so the people who have the most power to regulate the texas energy sector both in terms of petroleum
production and electricity are the ones who have been hit hardest by this climate disaster
that means we know exactly what's going to happen texas is going to have to winterize
now for the wind turbines that's pretty straightforward we've had wind turbines
in north dakota and iowa for years they have de-icing technology built in it's not an alien
concept or even if you just have a few more drone ports we know how to deal with that problem that's
not dirt cheap it's an added expense that will be felt but that's something we know
how to do very very quickly but winterizing the entire electricity sector winterizing the entire
oil and natural gas production sector in places like the permian that'll take a lot longer and
that'll be a lot more expensive but you know that mandate is coming smaller companies can't take it
all the companies that have been under pressure for the last two years as financial and production
and market conditions have changed now they have one more expense so forget biden forget
any climate policy changes forget funding from wall street weatherization mandates out
of austin is what your industry is going to have to worry about for the next three years
and it's flat out not negotiable if texans without power i'm sorry that is not gonna fly
all right let's talk about the broader crude oil environment so you know what to expect
regionally and globally moving forward this is the picture that shows why china it cannot be
a successful country in the long run it's the islands that parallel the coast japan taiwan
the philippines indonesia singapore it's not so much that in the past they've been
us allies it's that they form a barrier between the chinese and the rest of the
world they call them the first island chain and there is no iteration in chinese history
ever where the chinese have been able to interact with the world beyond on a corporate level
they just can't get through the chain it can block them too easily there's one exception today
under the global order when the americans have forced everyone to be on the same side
the single largest factor supporting the existence of a unified china of a corporate involvement of
china in the world of china's being the workshop of the world of china being the world's largest
energy consumer of the ccp itself the single largest factor letting that all happen is the
united states empowering it all the united states has to do if it wants to destroy the chinese
is go home and that's exactly what we're doing this changes the math so this is where we were
in 2007 at the dawn of the oil i've done of the shale revolution this is where all the
oil flowed we had three huge centers of demand the first two north america
and western europe would take energy from wherever they could all point to the compass because they
knew they were running out and if there was anything left ever it would take the long
sail around the east asian land mass to northeast asia and so the northeast asians had to pay a pre
up enough locally but after seven years of the shale revolution u.s energy imports dropped by
seven million barrels a day we started to ease out the europeans had a financial crisis in 2007 that
they never recovered from and so energy demand there plummeted all of a sudden if you were an
energy producer you had to find a way to get it to northeast asia because that was the only natural
organic energy demand growth on the planet so the northeast asians started getting discounts
but let's fast forward again let's assume that the united states has stepped back and
that normal geopolitics continues you'll get disputes between the russians and the europeans
in decreasing the europeans interest in russian energy the iranians and the saudis are likely
to act like the iranians and the saudis and the persian gulf becomes a dangerous spot
well and the united states is exited stage left because we just don't care anymore the europeans
are forced to go back out into the world and re-interface with their former colonies to
secure supplies some of those interfacings will be less gentle than others and that probably means
there's just not enough left for everybody and so if you are japan or korea or taiwan
or china your only option is to take your navy sail it into the persian gulf where blood feuds
have devolved into knife fights pick sides load up the crude yourself and convoy at home and hope
that no one in this environment thinks that a slow moving oil tanker is worth the trouble of taking
now if this were anywhere else in the world i'd be worried but if there's anything we know about
japan and china and taiwan and korea they've got centuries-old history of brotherly love
and cooperation and nothing could possibly go wrong or the seas of east asia no longer become
safe seem a little far-fetched guess again because it's already happening
over new year's the iranians hijacked a south korean tanker
this is a picture of their coast guard vessels escorting it into port uh south korea's crime
was that they were abiding by american sanctions on iran and the iranians are looking for ways to
force the americans back to the table to restart the nuclear deal something that the new biden
administration has not expressed much interest in and so they're looking for ways to get leverage
when this happened the trump administration did nothing then biden came in and biden did
nothing the united states does not care at all about global energy market stability
because we are functionally independent here and if there was a crisis somewhere in the world and
oil prices did shoot up the president already has the authority granted him by congress to
shut off oil exports and basically bifurcate the united states off from the global system
if that happens the united states would be fully independent or at least integrated with the the
mexicans and the canadians independent from north america and we would probably have a ceiling on
prices around 70. and at that price point all our shale fields are profitable the rest of the world
though enters into abject shortage and has no one who can guarantee security and so you can
easily see prices doubling tripling and more and becoming incredibly erratic moving forward you can
imagine what that would do for globalization in general and economic growth in specific
you