NAFTA and energy
The American Petroleum Institute’s chief economist talks trade.
Dean Foreman, chief economist at the American Petroleum Institute, joined the industry trade group in December after less than a year with Saudi Aramco. He got his start in energy with Exxon Mobil Corp., where he worked as an economist in corporate planning from 2002 to 2008. He recently spoke with the Chronicle about the outlook for the oil and gas industry. Edited excerpts follow.
Q: There have been some big policy announcements in the past few months regarding tariffs on components used by the oil and gas industry. What’s the economic outlook on what the energy industry will be facing with tariffs on steel and imported goods from China?
A: From a high-level policy perspective, tariffs open up the potential of a slippery slope for a lose-lose outcome between us, China and our trading partners globally. At API we are going through the list of the exact products that are going to be subject to tariffs. There is no doubt energy companies will be impacted.
Q: And how does the potential renegotiation of NAFTA play into the economic outlook for the oil and gas industry?
A: NAFTA is critically important in terms of the supply chain of crude and products flowing back and forth between the United States and Mexico. In natural gas markets and exports, we have a once-in-a-generation opportunity actually for U.S.-based industry to partner with Mexico. Mexico’s energy industry is going through dra- matic changes, but the presidential election in Mexico has become more populist. So this could be a slippery slope, much like we once had with Venezuela. What would it do to the investment prospects, for example, if you move toward populism in Mexico and tarnish the relationship with U.S. companies and their ability to work and deliver there?
Q: What does NAFTA and its negotiation, or politics change in Mexico, mean for the Permian?
A: Permian is a lot about oil and natural gas liquids. Mexico has become our largest export market for natural gas — 4 billion cubic feet per day going down. So if the U.S. hampers that, we will see a cascade effect that affects the entire upstream if we don't continue to keep good tax and trade.
Q: When it comes to the offshore oil and gas industry, it's my understanding that offshore really hasn't recovered in the way that the onshore shale has. What do you see happening with offshore, and what are the big challenges that are going to be faced in the next few years?
A: What happened with the lower pricing market in the last few years is that large offshore projects have been shelved. A handful move forward if they're really great opportunities. Now, instead of getting big deep-water rigs, you're seeing a transition toward more in-field or nearfield drilling. So the business model for Gulf of Mexico right now has concentrated on that because you've got shorter durations on projects, quicker cash returns. So, all this could mean that opening up of the Outer Continental Shelf — which the Trump administration is seeking to do — won’t will jump-start offshore drilling.
Q: This sounds familiar to some of the arguments we’ve heard for and against opening up public lands for drilling. Oil companies have said, for instance, that they don’t expect to drill on public land leases anytime soon and that they just want to explore.
A: We often get asked, “If you have all this shale, why do you want to access these resources offshore?” Opening up doesn’t mean that you’re going to have a drill rig appearing offshore anytime soon. These are multibilliondollar projects that take decades to cue up and may have to last decades. What we're asking for only is the right to use for the first time in 30 years modern technology to size the resource, to understand what the country actually has.
Think of it this way: If you personally had a lottery ticket, a winning one sitting in the drawer at home, you'd want to know it.
Q: How is the American industry doing now that it is out of the oil bust?
A: In March, U.S. petroleum demand was up by 1 million barrels per day, which is remarkable given that the average for the entire world between 2010 and 2017 was only 1.3 million barrels per day. So in the U.S., demand is booming right now. It's a good story for the economy because it means that goods are being transported, people are traveling, all of the activities that are a sign of a healthy economy.
Q: We hear a lot of numbers predicting growing electric vehicle market share and when it's going to happen. Who has the best prediction?
A: It's not something that we can predict. We can talk about what the signposts are that go with it and what the enablers are that go with it. So I don't know that there is a best prediction. What we can see is that there are a lot of promising technologies that have not yet become commercial and scalable to the degree that would be necessary to meet a lot of these long-term objectives. So if you want hundreds of millions of electric vehicles globally over the next couple of decades, you need fundamental breakthroughs in batteries that are not today's technology.