Oil Without Apologies John Watson, Chevron's CEO, says Americans must stop taking affordable energy for granted. That means more 'oil, gas and coal.'
By KIMBERLEY A. STRASSEL
San Ramon, Calif.
It's the day after President Obama delivered his most recent vision of America's energy future, and I'm sitting in the sunny corporate offices of Chevron, the country's second-largest oil company. Let's just say John Watson has a different view.
The Chevron CEO is a rare breed these days: an unapologetic oil man. For decades—going back to Jimmy Carter—politicians have been peddling an America free of fossil fuels. Mr. Obama has taken that to an unprecedented level, closing off more acreage to drilling, pouring money into green energy, pushing new oil company taxes, instituting anticarbon regulations. America is going backward on affordable energy, even as oil hits $110 a barrel.
Enter the tall, bespectacled Mr. Watson, who a little more than a year ago stepped into the shoes of longtime CEO David O'Reilly. An economist by training, soft-spoken by nature, the 53-year-old Mr. Watson is hardly some swaggering wildcatter. Yet in a year of speeches, he has emerged as one of the industry's foremost energy realists. No "Beyond Petroleum" (BP) for him. On energy, he says, America "has a lot to learn."
Starting with the argument—so popular among greens and Democrats—that we are running out of oil. "Peak oil"—the theory that global oil production will soon hit maximum levels and begin to decline—is a favorite among this crowd, and it is one basis for their call for more biofuels and solar power. Mr. Watson doesn't dismiss the idea but explains why it remains largely irrelevant.
In theory, he says, "we've been running out of oil and gas for a long time," yet technology creates new opportunities. Mr. Watson cites a Chevron field long in decline down the road in Bakersfield—to the point that for every 100 barrels of oil "in place," the company was extracting only 10 or 20. But thanks to a new technology called steam flooding, Chevron is now getting 70 to 80 barrels. "Price creates incentive, and energy will be developed if there's demand for it at the price you can develop it," Mr. Watson says. In that sense, "oil and gas are plentiful."
Don't believe it? Over the past 30 years, even as "peak oil" was a trendy theme, the world's proven reserves of oil and natural gas increased 130%, to 2.5 trillion barrels.
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Terry Shoffner
Or consider America's latest energy innovation: hydrofracking for abundant and cheap natural gas. This advance, says Mr. Watson, took even the industry "by surprise"—as evidenced by the many U.S. ports to import liquid natural gas that are now "sitting idle." Chevron last year paid $3.2 billion to buy natural-gas producer Atlas Energy as its foray into this new market.
Mr. Watson has little time for the Beltway fiction that America will soon be able to do without, or nearly without, fossil fuels. Yes, "we need all forms of energy." But the world consumes 250 million barrels of energy equivalent today, only a "tiny fraction of which" is wind and solar—and even those "are not affordable at scale," he says.
As for biofuels, "we would need to consume land the size of states" to hit the country's current ethanol targets. Chevron is investigating biofuels, but Mr. Watson says the "economics aren't there" yet. Unlike many CEOs, Mr. Watson insists on products that can prosper without federal subsidies, which he believes are costly and lacking in transparency when "consumer pockets are tight, government pockets are tight."
Bottom line: "We're going to need oil and gas and coal for a long time if America wants to keep the lights on."
He seems to mean it, too: Chevron recently announced the largest capital and exploratory budget in its history, $26 billion to drill in Australia, Western Africa and the Gulf of Thailand, among other places. Some of that cash will go to the Gulf of Mexico, though Mr. Watson wishes there were more U.S. opportunities.
"Most of the well-developed world—Australia, Western Europe—they develop their resources base, they inventory it, they develop it, and they view it as a good source of jobs and revenue," he says. The U.S.? "We are a country" that for too long has taken "affordable energy for granted."
The Chevron exec was "pleased" to see Mr. Obama acknowledge that "oil and gas were fuels of the future—because I hadn't heard that before. That's a significant step." Looking to reassure Americans about rising gas prices, the president nonetheless resorted to the old standby of calling for a one-third reduction in U.S. oil imports by 2025. Mr. Watson thinks that's a fine goal, but he points to the enormous disconnect between what the president is proposing and existing policies.