WHY I AM A CARBON OPTIMIST
[Applause]
i’m going to talk about the pace
of energy transition
the transition away from carbon to
something else
now why why is that important well if we
can accurately predict
the pace of energy transition we’ve
solved for one of the major variables
in climate change so i think it’s very
important
i have about a 40-year history in the
energy business
is there anything i’ve learned in that
40 years that might give me special
insight or special ability to be
predictive
i think there might be i’m going to make
a bold prediction
tonight i think that in the next 10 to
15 years we will largely have solved
human-caused climate change
because it’s working at a pace today
that was unimaginable
even a year or two ago we’re not going
to solve it from policy changes we’re
not going to solve it from regulation
we’re not going to solve it from
pandemics we’re going to solve it
from ingenuity from technology from a
massive
redirection of private capital in the
many many many trillions of dollars
you’ll see this in a minute and we’re
going to have fun doing it that’s why
i’m here
so a little
a little bit about me i’m a third
generation montanan
lived in nine different places around
the state a lot of disruption in that
my father started as a lineman climbing
poles from a montana power company
retired as president of the company
that’s obviously a company that was one
of the founders of big sky
i was very fortunate in the in the in
the family i grew up in
my father was one of 10 children i have
33 first cousins
we get together regularly every three to
five years
either at one of my ranches or somewhere
else in the state
and usually two to two hundred and fifty
lucians or lucian related people
show up i have benefited immensely
from the culture the the ingenuity
the fun of that family it’s full of
pranksters
it’s full of practical jokers it’s full
of some of the most creative people i’ve
ever been in a room with
i’m always forced to remember
a couple of the people of those 200 or
250
one of my my group owned a gas station
in eastern montana and it was in the
days this is in the 60s where there
wasn’t indoor plumbing
as most montanans do he had a complex
outhouse system out back at the service
station
a hers and a his two holes on each
never a single always two holes maybe
three maybe four maybe five
he got so annoyed at people from the
east coast 250 miles inside montana on
the way to the mountains
not having seen a mountain being rather
foul foul
in their attitude slamming the door of
the car this is back in the
self-service days uh full service days
and asking where the bathroom was and he
got
quite comical about this to the extent
that he wired up the hers
with an intercom system under one of the
seats
he would give the lady a minute or two
to sit down
and then he would get on the intercom
and say ma’am do you mind moving over
i’m
painting down here can you imagine what
that did to somebody
i never forgot that we had another of
the family or one of the family friends
who who got his veterinary degree and he
moved to cody wyoming
he hung out a shingle he didn’t realize
until he got there there were seven
other
vets in town he wasn’t doing much
business well those of you that know
cody
know that cody is one of the real
headquarters of big game hunting
in north america so one of his friends
counseled him that you know veterinary
medicine and taxidermy are pretty close
there’s too many vets but too few
taxidermists
so he thought about it for a while and a
few days later when we walked by his vet
clinic
the sign said veterinary clinic and
taxidermy
either way you get your dog back
that’s the humor of my family
so how did i get involved in the energy
business
like most things a series of accidents
i rough necked in teapot dome wyoming
that’s a well-known place to most of you
probably
and i um i ended up at a place called
goldman sachs on the east coast
in don corleone fashion i was told a
couple years into my career
that i was a fairly mediocre banker but
maybe i could specialize
because montana was such a hotbed of
energy and that’s where i was from
i think they got confused because there
really wasn’t energy in montana there
then it was
north dakota so what’s my career in the
energy business been like
for the first 25 years the energy
business in in america particularly the
oil business was really a backwater
on you know from a global standpoint but
about 15 years ago that changed rapidly
with the shale revolution it changed
because two individuals
george mitchell and mark papa
created a new way to drill oil wells to
turn the bit horizontally and use
a fracking uh technique with with high
pressure water
to break down the rock in a new way
overnight
the u.s went from 5 million barrels a
day of production to 12 biggest producer
in the
in the world of both oil and gas and it
was done
in america even though the resource
existed elsewhere for three reasons
one we only the minerals in america
that’s something that most people don’t
understand
in every other country in the world with
very few exceptions
the government the queen the czar owns
the minerals here
we as individuals own it it gives you an
unbelievable
incentive to make it work and that is
going to play right into decarbonization
secondly the u.s is drilled like a pin
cushion
hundreds of thousands of wells we have
rules here that we share the data on
every well
so when i drill a new well in north
dakota i’ve got 500 wells around
me there to give me data to know what
i’m drilling
in other parts of the world you don’t
have that pin cushion and then we have
rule of law private capital created that
not regulation not the government small
independents that means small oil
companies
not the super majors created and
executed to play
that is what will happen in
decarbonization
now let’s bring it up to today we’ve
been in the renewable
and conventional energy businesses for
many many years but things changed
in a cataclysmic way september
- we used to get ourselves that
for kid our clients and our investors
that
no one will get serious about climate
change until jesus comes back
what do i mean by that that free riding
i.e we solve the problem in america but
the chinese do nothing about it
will accomplish nothing until everybody
believes it’s a problem
so it takes somebody of total integrity
to say it’s a problem well it happened
in september
of 2019 jesus came back greta thundberg
it changed everything suddenly
a virgin away from fossil fuels
disinvestment
if you own fossil fuels the u.s election
cycle
the the whole accelerating pattern
against
fossil fuels came to roost
kovad when we were sitting here in march
amongst our our group in our energy
business
we had a raging debate about would covet
accelerate uh energy transition or delay
it
it’s very clear today it’s accelerated
it
today we can’t borrow money we can’t
raise money in the equity markets
for fossil fuels some of our companies
that have leverage
in the form of bank loans and the like
or bonds
have to actually pay down the loans
money they already have
if they don’t conform to certain uh
energy transition edicts that that the
bank provides to them
all that means this is accelerating and
an
incredibly incredibly fast pace
now those of you in march or april know
that
demand for oil demand for gas went down
precipitously
oil and gas produce themselves they
can’t be stopped
we ran out of storage oil prices went
negative
we own a lot of oil tankers most of
those tankers
were doing small circles in the atlantic
and the pacific because they had nowhere
to go with the oil
it was quite a time technology is
changing
it’s overtaking policy what is the what
is the real upshot of this
uh exxon historically was the best
managed company
among many companies many industries it
was also the biggest
today give you an example of three
companies
exxon equinox nextera
exxon you know equinox is a digital data
center company
nextera is a is an old florida utility
that went
wind in the last 20 years exxon stock
price is flat uh
equinox is up by a factor of three
nextera up by a factor of ten
next two r is bigger than exon now all
the big
apples and microsoft are ten times the
size of exon
if you don’t see the tuba is blaring
fossil fuels are over now how does that
play into our business well we
have one of those guys that created the
shale revolution
mark papa created the best shale company
in the world eog
then came to to our company after he
retired and he created a company called
centennial
we’re in the best rock best base in
permian best management team
and we keep beating the estimates the
quarterly estimates that the street have
for our
operations and our stocks down by 93
that says the business has changed now
where has it changed in the other
direction
well look at this in the last 20 year or
10 years
solar cost down to 80 percent solar
usage up by
by 1300 percent same with
battery costs battery costs are down 80
percent
evs are up by and five hundred percent
so obviously there’s a lot of positives
in this business
they’re not in the fossil fuel area
what’s the lesson
the lesson is the business is headed at
a very rapid
pace toward energy transition non-carbon
government and top-down investment
programs are not the way that happened
it’s all because of private capital
that’s why
i’m so bullish on how quickly this is
gonna you’re gonna
happen the other thing i would say the
biden administration while i say that
regulation and policy doesn’t matter or
doesn’t matter that much
you know people always ask me you must
go to washington dc all the time
because you’re in a business that’s so
regulated i said i’ve i’ve done this for
41 years
i’ve been to washington dc twice so i
don’t think regulation makes that much
difference
but what does make a difference is we do
change at the top
we do get a breath of fresh air i’m
reminded that when i was in
college in england i used to hang out as
you might expect
at the pubs with a bunch of my british
friends they usually usually picked on
me and my other
american classmates to say you yanks are
stupid
you’re not well educated you don’t work
hard but you are going to win
every single time because when it
doesn’t work
you change that’s what we’re doing here
now here’s just a slice of my life this
is just the last few days
living here or living in america and
just seeing the headlines that cross my
desk
this is the time for decarbonization if
you just look at a couple of these
climate change is going to be very
expensive that’s what the chicagoans say
you look at cnbc sustainable investing
is now
a third of all the investing in the
world all these
hundreds of trillions of dollars a third
of it
only goes to sustainable businesses
that’s up from zero
10 or 15 years ago that means we have a
limitless pool of capital
to try to attack the technical problem
or other problems related to energy
transition
likewise you know associated press says
it’s not too late and it is not too late
we can
we can change this thing fairly rapidly
the b of a
comment is a comment about a financing
technique that we and others use
that is really directed toward
decarbonization called a spac i’m not
going to take time in this forum to
explain this
but we are raising billions of dollars
of this it’s in the newspaper every day
it was in the newspaper
today probably half of my uh headlines
that i got today
we’ve raised six billion dollars in that
business but we need two and a half
trillion
so people always say well is it a bubble
is there too much money being raised
i just pointed to that number we are a
long ways
relative to the opportunity in raising
the money that we need to do this
now the title in my my talk was
excuse me was all about s curves what’s
an s-curve
it’s what’s drawn on the page it is a
measurement of the rate of change or
rate of adoption
for new products new technologies
whatever
and the line basically says these come
in all shapes
it starts out slow you get to an
inflection point
everybody wants it you can think of all
the things that everybody wants
then you get a flat point what’s the
flat point either you read saturation
or you’ve reached a point where other
technologies other
products are better now for those of you
who are wondering
well how am i going to use this you can
use s-curves for anything
we talk talk about this and we come up
with new categories we can apply an
s-curve to
one of them is sex
now if you’re sitting there looking at
and saying what could this
possibly mean you’re applying this to
sex
well i’ll give you a clue the upper flat
part is the cigarette in
bed all right let’s talk about
rapid change all right these are going
to go quickly that’s a picture of new
york city
1900 there is one car there
13 years later there’s one horse
rapid change the amazing thing and this
is where i argue with people that we’re
never going to change the infrastructure
the creating all these new charging
stations and all this
the people that were there then created
two new industries auto and oil
they built road infrastructure there
wasn’t any they trained the workers
they invented assembly lines and they
fought world war
one all at the same time you don’t think
we can do that again
i think we can these are by the way
some of these graphs are are compliments
of
a fabulously gifted person i would
recommend you look up if you don’t know
tony seba he’s a futurist at stanford uh
this is his graph
but this basically says look at a whole
let’s look at a whole bunch of s
curves and see if there’s anything
changing over time well it’s very simple
look at power look at cars took 50 years
to get to saturation
look at the internet look at the iphone
took two years
we are living in the two year phase so i
think we’ve got a lot to look forward to
in in terms of decarbonization we have a
very special relationship with mckinsey
so i like to pick on them mckenzie the
brightest guys in the room
1985 they got hired for millions of
dollars by at
t to predict how many cell phones will
it be in the year 2000.
they predicted 900 000 there were 110
million
they were off by a factor of 120. i want
that job
now here’s some of our predictions or
our use of other people’s data
to stack up how rapidly we’re getting
too conservative
this is a series of of predictions
on the wind installed wind
in in the u.s it’s done by the iaea
which is
international energy association one of
the many or agencies rather one of the
many
predictors but if you look at the time t
zero to t9
we refreshed each one of these
predictions you see how rapidly they’re
saying we were wrong we were wrong it’s
much faster three times what we thought
there
if you go over to solar much faster 22
times faster
and by the way solar and wind that’s the
old news
we’re talking about all these new things
that are part of decarbonization
so where are we focused we think
there’s six trillion dollars a year of
spend
that’s going to be required to
decarbonize the world
there are six areas that we think are
investible
today where you can actually take other
people’s money
and put it to work because we’re a
custodian for other people’s money
and actually turn a profit those are
those six areas are electrification of
transport
that’s essentially evs grid flexibility
that’s batteries
batteries are the are the are the holy
grail of our business
greening of fossil fuels which means
cutting down on emissions there are a
whole variety of ways to do that
proven agriculture i’ve been in the
energy
energy business for 40 years i’ve been
around the ranching business for
all of my years i’ve owned ranches in
montana and wyoming for 30 years
and i will tell you a simple thing we
generate about ten dollars an acre
of contribution in our cattle business
here in in montana we’ve had a number of
the new technology experts out to look
at
ways we can plant cover crops or do
other things
you’ve probably heard about no-till
farming and things like that
and generate in some cases only with a
few acres
three carbon credits an acre well that’s
60 dollars
you think it’s going to take a bunch of
farmers very long to figure out that
they can make a lot more money
doing the right thing i don’t think so
so i think the the world is
very very bright by the way i didn’t
cover the last two sections which are
basically hydrogen and then just taking
the the global supply chain
and making it more efficient those are
areas that that are included in the
three trillion dollars a year
of spend that we see in this business
now interestingly
so i’m a tired old conventional energy
guy
who’s made a pretty good living being
in a business where there’s one trillion
dollars of new spend
every year now i’m in a business that’s
six times as large
it looks like a feeding frenzy to me
looks like an opportunity-rich
environment
so the last thing i will say is the
concept of what i’m talking about is not
new
60 years ago john kennedy said these
words
so it is not surprising that some would
have a sta
stay where we are a little longer to
rest and wait but this city of houston
obviously was doing the speech in
houston
the city of houston the state of texas
this country the united states
was not built by those who waited and
rested and wished to look behind them
this country was conquered by those who
move forward and so
will we in decarbonization
the last thing i’d say is
i would be very optimistic about climate
change
sit back relax
be positive things are going to get a
lot better
they’re getting a lot better much faster
than i think they’re going to get
it’s going to take a lot of private
capital it’s going to take a lot of
ingenuity
it’s going to take some pranksters and
you know
folks like my relatives it’s going to be
fun
the only thing i would say is fasten
your seat belt it’s going to be a heck
of a ride the next 10 years
thank you
you