Aubrey McClendon - The Switch Interview

- [Aubrey McClendon] There's something quite exceptional that's happened. We have discovered the largest deposit of clean energy in the world, in the last five years, and it's right here in America, it happens to be about a third of the cost of oil, it's cleaner, its production and consumption creates high-paying jobs, and it also reduces costs to the consumer, and there probably means that we can save some money overseas as well. - [Dr. Scott Tinker] Tell me about U.S. gas supply, if you look back 10, 20 years and today. - [Aubrey McClendon] Well I would even just go back five years ago. I mean, five years ago we were in a state that I think had existed for the last 10 or 15 years, which was... We were in decline, and we were running out of new things to do. There was a feeling that we had to have access to new areas, whether it be in the Rocky Mountains, or offshore in Alaska, because everything was worn out in the U.S. But my eyes, brain, head were all turned by the discovery of the Barnett Shale, which we kind of came to the realization, was a real a thing in 2004, and so, in my view, the modern gas industry is going to be defined as having occurred in about 2004. - [Dr. Scott Tinker] When you say "modern gas industry". What does that mean? - [Aubrey McClendon] Well, I mean, we found gas first, I guess, for commercial use in 1840-- - [Dr. Scott Tinker] Yeah. - [Aubrey McClendon] In Fredonia, New York, actually out of the Marcellus Shale, so we've been using it for 165 years, and looking for it the way we used to look for, well, it's the way we still look for oil, which is in conventional traps where your odds of success are relatively low, and the scale of your discoveries is relatively low as well. Now we look for gas in all the areas we were told to avoid before, which was in tight sands, and then in shales, and the way that I kind of think about it is shale is the kitchen of the oil and gas industry and it's... Everyone's always known that oil and gas was cooked in the kitchen, and then the food was taken out, or in geological terms, expelled in the other formations around it, and you can find a lot more food in the kitchen than you can in the dining room, generally, and so that's kind of my analogy, and so we've moved from this perpetual state of scarcity to now this new state of abundance that I think we'll be in for decades, and decades. - [Dr. Scott Tinker] If you look out 10 to 20 years from now then, what do you see? - [Aubrey McClendon] Well, I... The future, I think you can look at it a couple of different ways. One, you can look at it from how much gas is there out there and in the United States, I think there's about 2,000 trillion cubic feet of gas-- - [Dr. Scott Tinker] 2,000 trillion. - [Aubrey McClendon] Yes, which would be two quadrillion cubic feet of gas, which is enormous, or said another way, it's about 100 years of supply at present consumption standards and to imagine that you never have to do... Make any other discoveries and you've got 100 years of any resource, is just extraordinary. - [Dr. Scott Tinker] You're comfortable that the resource is there, does LNG play a role in that? - [Aubrey McClendon] Sure, I mean, it plays a role in the sense that if somehow we're wrong about the ultimate amount of gas in place, that if you ever get in a bind for some reason, you can import LNG. - [Dr. Scott Tinker] Yeah. - [Aubrey McClendon] The days of hurricanes, like Katrina and Rita, causing gas prices to go from $7.00 to $15.00, it's a physical impossibility. The Gulf of Mexico matters less today, from a percentage of U.S. production basis, than it has for the past 50 years, and we've hardened the asset base of the U.S. gas industry by bringing it on, and if for some reason we had a supply problem in the U.S., you can import about 10 VCF a day of natural gas. That's about 15-16% of our supply. So the days of price spikes because of shale gas, the decline of the Gulf of Mexico, and the construction of LNG importation facilities, basically guarantees that gas will trade in a much tighter range going forward. - [Dr. Scott Tinker] It's great for the consumer. - [Aubrey McClendon] It's huge news for the consumer and at the end of the day, it's good news for the producer. I think we can see an industrial renaissance in this country. I think for several decades to come, at least, we should have the lowest natural gas prices in the industrialized world. All these companies that say they ship jobs overseas because of high energy costs, I think, can bring them back. You are going to... I think there's a way to, I mean, to go to the American consumer and say, "I'm running for President. And oh, by the way, my platform is this, okay? I'm gonna let you buy any car you want, Small car, big car, whatever, and I'm gonna provide you with the ability to fill that car at $1.50 a gallon rather than $3.00 a gallon. It's going to be cleaner. You're gonna feel good about yourself in the environment, and you're gonna have more money, which will create more American jobs and make your life better, and the fuel that you put in your car, American natural gas, will create more jobs for your fellow citizens as well." Because I think what the U.S. natural gas industry has done, the independent natural gas industry, remember this has been brought to you by just about - [Dr. Scott Tinker] Right. - [Aubrey McClendon] a dozen companies that, you know, most people in America have never heard of. But we might have brought a way for America and the world to be able to increasingly say no to OPEC, and see oil prices at that lower levels, and see greater CO2 reductions in the atmosphere, without having to throw a wet blanket of capping trade across the U.S. or the world economy. If you're really interested in improving environmental quality in the U.S., from a CO2 perspective as well as a particulates and other pollutants, you have to focus on two areas. You have to focus on coal and the electricity sector, and you have to focus on the transportation sector. Sticking with electricity, you have to say, "Okay, in that coal stack of, you know, all those plants that come on every day to make electricity, what are they like?" Well, as with almost anything in life, there's 20% or 30% of them that produce by far the greatest amounts of pollutants, and so we're not suggesting that you can eliminate all coal consumption in the U.S., that would require basically a doubling of U.S. gas consumption and I don't think that's reasonable. But you can say, "Hey, let's go after the ones that are 30, 40 years old, and let's think about a cash for clunkers deal." It worked for automobiles. - [Dr. Scott Tinker] Yep. - [Aubrey McClendon] And the difference is this cash for clunkers doesn't require that there be new natural gas plants be built. We've got plenty of plants out there right now, they just don't run very often because right now, we haven't yet internalized the external costs of burning coal. If you were to do that, in some way, then gas would be a bargain. Now we're in a position where we can take a big step forward, a great leap forward, and for that to happen, I do think Washington and at the state level, you have to have policy changes. At state level, that means electricity shouldn't always be dispatched without regard to environmental costs, for example. At the national level, it means that you encourage... How do you best encourage automobile manufacturers to develop a propulsion system that, for example, is widely adopted in many places around the world? Manufacturers need to be pushed by government, and then government has to help on the infrastructure as well. I mean, there are certain things where government has to be a catalyst, and here is a great example, and the benefit to the federal government being a catalyst is that they can bring to the American people a fuel that's cleaner and cheaper, creates American jobs here, and enhances our national security. - [Dr. Scott Tinker] Some have expressed concerns over the process of hydrofracking. Are these warranted? - [Aubrey McClendon] I think there should be concern about, frankly, any industrial process. I