How would you characterize the global energy landscape after the oil price crash several years ago?
The landscape is dramatically different in comparison to where it was when I ended my term as Secretary of Energy in 2005. In the first decade of the 2000s, Middle East and North African countries had a dominant production role. There was production elsewhere, but the swing supply was in those regions. In recent years, there has been growth in production in places like the US, Russia, and countries in Africa that were previously less prominent. Technological advances like horizontal drilling have allowed the extraction of shale gas and oil and created opportunities around the globe, resulting in a broader range of countries factoring into the production equation. In the US, we’ve gone from relying on imports for 60 percent of our oil to a situation where we are producing more than half of our needs, and that number is likely to grow. Development in other countries has lessened the influence and leverage that Middle East and North African countries have previously had. Consequently, OPEC has shifted away from a price focus to a market share focus. This is particularly true of the Saudis. This quest for market share will continue even if it results in lower prices, and this trend will likely continue.
"the oil and energy markets have not seen a sharp increase in demand in recent years"
How would you characterize the demand side of the equation? What countries or regions are worthy of attention?
The demand side starts with the issue of global growth. Growth in the US has been relatively small compared to what it was in the 1990s and the early 2000s. Growth in Europe has been fairly low as well. This is somewhat offset by Asian demand growth, with an ever-increasing number of people in that market entering the middle class. As a result, the oil and energy markets have not seen a sharp increase in demand in recent years. This has compounded problems on the supply side in terms of price and market share.
Are there any developments with energy sources like nuclear, renewables, and hydro/geothermal that provide signals to industry?
There has been a large shift from coal to natural gas in the power sector, with low natural gas prices stemming from increased supply made possible by new technologies. A global liquefied natural gas (LNG) market is beginning to emerge, which has placed tremendous stress on other sources of electricity and power. Whether it’s nuclear, fossil fuels, or renewables, they will have a harder time maintaining their market share when the price of natural gas is so low. New technologies have really given natural gas a huge competitive edge over the other power-producing fuels.
Do you see natural gas’ competitive advantage as something that will hold long-term?
The forward curves suggests this, and the simple fact is natural gas produces half the carbon emissions of coal. It’s not as clean as renewables or nuclear, but as you see people transform their fleet from coal to gas, they are gaining substantially in terms of CO2 emissions reduction. So there’s a monetary advantage and an environmental advantage as well.
What does this do to renewable energy companies trying to gain market share?
It can be complementary. First of all, in the US, individual states have played an aggressive role in setting targets for renewable energy. Regardless of what federal rules might be, several states have ambitious renewable energy goals. Second, we’re also seeing a real corporate and cultural shift towards making renewables part of the equation in the US and Europe. You’re likely to see some combination of renewables, natural gas, and nuclear as the principal forms of power production with a new generation.
Do you think there will be a noticeable shift in energy policy under President Trump?
Washington probably won’t dictate these outcomes, rather the states will have a more active role. There is speculation the Trump Administration will either stop or significantly modify the Clean Power Plan. This is unlikely to alter the attitudes of the states or corporate America because of various sustainability policies and targets that will ensure a diverse set of sources for power generation. An “All-of-the-Above” approach will likely be the policy in Washington. Of course, we’re early on, so it’s harder to project now than it will be further down the road.
What do you expect from the Trump Administration in a broader economic sense?
I expect there will be a major effort to pass tax reform focused on making the US corporate tax rate competitive with the rest of the world. There may be a Border Adjustment Tax to provide greater reward for domestic manufacturing. There will probably be a major emphasis on reducing regulatory burdens out of Washington that have had a negative impact on business development and job creation. It remains to be seen how far President Trump will go in terms of some of his trade policy talk from the campaign trail. We’ll see if he's more retroactive or proactive when it comes to trade.
Given your choice, where would you prefer to see trade policy go moving forward?
I’m fundamentally an advocate of free trade. If the policies being enacted generate a great deal of backlash and unhappiness because they are perceived to be unfair, that’s a prescription for longer-term disaster. I hope we can take a measured approach to ensure that policies are implemented fairly.
"Right now we are facing an ever-increasing possibility of cyber and physical threats to the grid"
What are some of your priorities between now and the end of the year people should keep an eye on?
Looking at the energy sector, I’d encourage more focus on creating competitive markets. There are a lot of subsidies and regulation, particularly in the power sector, and increased competition will be good for companies, ratepayers, and efficiency. I believe grid security will be a point of emphasis moving forward. Right now we are facing an ever-increasing possibility of cyber and physical threats to the grid.
What are some of The Abraham Group’s priorities and upcoming projects for 2017?
We’re a consulting firm in the energy space, so we’re anxious to provide services to companies trying to enter the US market, or American companies trying to enter the international space. I think there will be opportunities in both directions. We are also very active in supporting new energy technology and companies that work on that as they look for business development or financing.