"Robert Hefner III, GHK Company, shares
his thoughts on the North American natural
gas industry"

The Energy Exchange spoke to Robert A. Hefner, Owner and Founder of GHK Company, a private, Oklahoma City-based oil and natural gas company. In 2009 Robert A. Hefner III launched his book The Grand Energy Transition (The GET). This year the documentary based on his book is coming out, which we will be screening at the North America Gas Summit. We spoke with Robert A. Hefner III about his book and the future of natural gas in North America, which we will be addressing at the upcoming Summit.

August 15, 2011

Monika Gonda, Director North America Gas Summit, The Energy Exchange: How will the “grand energy transition” take place – what are the key hurdles to overcome and the biggest gains?

Robert A. Hefner III, Owner and Founder, The GHK Company: I think this is why this should be a great keynote because it is the very big picture. The very big picture is to view energy in its state of matter – solids, liquids and gases, rather than looking at each fuel individually. The Grand Energy Transition, or GET, as I call it, is a one-time transition that takes place with the evolution of civilisation within the advancement of civilisation. It is like the chicken and the egg - one can’t happen without the other and because everything we do, every waking and sleeping moment is an energy decision, there are literally trillions and trillions of energy decisions a year made by all the people on earth, all the 7 billion people, and that is driving the evolution of energy incrementally, every single day. And because you can’t advance civilisation without having better forms of energy, more efficient forms of energy, more productive forms of energy, one requires the other. What is the driving force? Probably it is civilisation’s intent to create and innovate. So that is the big picture. What that shows us is that we created civilisation around the fire, a solid, primitive high-carbon fuel we used for a long time, for thousands of years, wood and grass, animal dung and so forth. I call this the Age of Solids. Civilisation could not advance too far with those sources of energy. The first major transition to a significantly better fuel that had less carbon, was more efficient, could be carried around easier and had more hydrogen was coal; from wood to coal. That sparked the Industrial Revolution. Now I am going to make some big leaps forward; the Industrial Revolution did a lot of things for civilisation; it freed slaves, it freed serfs, it created time - a lot more time for people to do other things, it allowed for the advancement of transportation, it allowed for tiny first steps of globalisation, coal burning ships and so forth. Then, toward the end of the later phases of the Industrial Revolution and after, particularly during World War II, (Churchill was one of the catalysts of converting the British Navy from coal to oil during WW I), we began to move to what I call the liquid transition; principally petroleum oil, but it began with whale oil. As history looks back at it, I believe the Age of Liquids will be relatively short because liquids are a transitional form of energy. We are now in the throes and perturbations of the liquid transition that will take us to the Age of Energy Gases, beginning with natural gas as the principal transition fuel.

Oil, since 1973, has been declining as a percentage of the global market place. At the end of World War II a new fuel just started to begin, principally in the United States, and that was natural gas. Natural gas has been, more often than not, the fastest growing primary fuel since that time, because it is once again, as oil was, a significant improvement necessary for the advancement of civilisation: less carbon, more hydrogen, easily transportable and more efficient. I believe that as we end the age of oil and coal and begin the Age of Energy Gases and with natural gas I include wind and solar, because basically the sun, although it’s fusion going on, it’s just hydrogen gas. So we are now into the Age of Energy Gases, driven by natural gas. Once again, this transition will unleash another great period of enormous economic growth for the world. So that is kind of a quick thumbnail sketch of how it takes place.

The big hurdles in America today are the whole hysteria over fracturing, because it takes place deep in the earth and hidden from us, people can create fear and hysteria from the unknown without real facts. Unfortunately, that is what is going on today. Those opposed to fracturing created fear and panic and people also stir up politicians and, unfortunately, the natural gas industry never really had political leadership or any sort of leadership for the natural gas industry on its own. It is because it really isn’t an industry, it is composed of various parts and they all have had different agendas, from production to gathering and transportation to distribution. And because of that it has never been an industry that had a plan and had a political agenda that was clear and that politicians could understand and for these reasons it has never had a functioning and cohesive lobby.

The biggest gains, let’s focus on America; the biggest gains from natural gas for America would be to significantly help rebuild our economy if we take the path to natural gas, domestic natural gas. It will be the creation of hundreds of thousands of American jobs, it will be to enhance significantly our national and economic security and it will be to clean our environment from the smog of major cities and all of the coal pollution. It will also be to substantially reduce our CO2 emissions. Therefore it means huge gains, for this country and any other country that wanted to follow The Grand Energy Transition into the Age of Energy Gases.

Monika Gonda, Director North America Gas Summit, The Energy Exchange: Aubrey McClendon recently commented on the lack of political leadership on natural gas. Do you agree with that statement and what do you see as the way forward for an effective gas lobby?

Robert A. Hefner III, Owner and Founder, The GHK Company: Aubrey is absolutely right and he listened to me saying this forever. The problem is you have a bunch of independent producers who develop the natural gas in this country and develop the technology to make it profitable. They have done well, very well. Aubrey’s Chesapeake Energy is one of them, Devon is another, Newfield, EOG and others. They have become larger as a result of creative innovation and have been quite successful, but they are still run by a number of people who, if they weren’t so independent, they wouldn’t have been in the business and the kind of person needed to develop these sorts of companies. So that has caused the production side of the industry a lot of problems about coming together. Now we have done it, we hope, with ANGA, which is beginning to do a good job, but we need more than that, we need to come together as you have organised in the North America Gas Summit, because it has got to be the entire natural gas industry that must finally come together and be sold on the development and the advantages of the transition of America to natural gas. So it is all of us coming together as a cohesive force and first of all selling to our public, we all have a lot of public, all natural gas producers have all of their mineral owners they pay lots of money to all the time, the distribution companies have all of the 65 million American households they distribute to and that’s probably 100 million or more American voters that they can easily communicate to, and in between the natural gas transporters would have to also get on board and speak to their more limited public. So first start with the public and that starts a ground swell, then industry must come together, from producers to consumers as I said, and out of that we can grow some political leadership, but it has got to be developed and we have to elect politicians who understand our story, because it is, I think, as important a story as the resolution of America’s financial problems and all the banking problems that caused our 2008/9 crash. To me this is equally as important and certainly for the long term for the United States and for our national and economic security and our way of life and our environment and whether or not we are going to continue to compete with China as one of the top two CO2 emission producers.

Monika Gonda, Director North America Gas Summit, The Energy Exchange: The “Grand Energy Transition” documentary will come out soon and we look forward to screening it as a premiere at The North America Gas Summit. What are some key messages of the documentary that you look forward to discussing at the North America Gas Summit?

Robert A. Hefner III, Owner and Founder, The GHK Company: Now, the GET documentary key messages are that the GET points clearly to the energy winners and the energy losers and it always has since the transition began a couple of hundred years ago. Now it is clearly pointing to energy gases as the winners – natural gas, wind, solar and eventually hydrogen. We correctly hear it all the time that politicians can’t pick winners, but civilisation, the advancement of civilisation, can. If you look at those curves, those curves point the way to the future and when you go to the big picture, from solids through liquid transition to a gaseous future, that is pointing clearly the way forward and if we concentrate our time, effort and money on what are going to be the winners, we will save trillions of dollars and lots of turmoil. We will save economic hardship and we will get to economic recovery and jobs faster by following winners. I have an example in my book during the Carter Administration when government intervention turned all that around by picking a loser in the 70s and took us back to coal for a generation. So the GET picks the winners, because it is the trillions of decisions by all the people on earth, by all the people in the country that are making those daily decisions, both when they are awake and when they are asleep. The other messages are natural gas abundance, and that the fear over fracturing is hysteria and not grounded in and founded on facts and that we need to get those facts on the table and do it right away, and that we, all Americans, need to come together and begin to lead toward the natural gas future. Natural gas, wind and solar are clearly the winners.

Monika Gonda, Director North America Gas Summit, The Energy Exchange: Where do you see the biggest environmental benefits/gains of switching to gas-fired power generation and transport?

Robert A. Hefner III, Owner and Founder, The GHK Company: Gas-fired electric generation soon can rid us of all our dirty coal plants, and we can begin right away. The United States has 460,000 mega watts of natural gas generation capacity already connected and built, it is sitting there and that is a lot more than coal fired generation. Coal fired generation is only 339,000 mega watts, so what we need to do is immediately start running natural gas as baseload and get rid of all the dirty coal plants. The biggest gains are huge reductions, hundreds of millions of tons of CO2 reduction that you can’t get rid of any other way for decades to come, not with clean coal, not with  wind, not with solar, you can’t get there that fast. And transportation gains are potentially enormous; if you did Boone Pickens’ plan and converted the 18-wheelers, we would reduce oil imports by about 2.5 million barrels a day. I have pointed out for 30 years that the biggest vehicle fleet is the 130 million or so, about half the American fleet of automobiles that reside at the 65 million American homes that are already connected to natural gas where they can install a little fill station, a small appliance where you can fill up your car overnight. That transition could be done rather rapidly if the government supported it with tax credits and government loans. That would be one thing the government could do and make a profit on, because it would save the U.S.  Economy trillions of dollars of drain from our continuing purchase of foreign oil, and that would mean those trillions of dollars would be working at home for the benefit of all Americans.. Huge amounts can be done in the transportation sector. If you did Boone Pickens plan and converted the 18-wheelers and did the majority of the fleet that lives at the 65 million homes that are already connected to natural gas, we would eliminate nearly 75% of our oil imports. All of sudden we would have a vastly improved trade balance. Our economy would be safe; our national security would be enhanced multiple of times and we can stop fighting oil wars. And if we don’t need the oil, China, India and the rest of Asia will. But the price of oil would go down significantly for the long-term and the Asian economies would boom as a result of lower prices, eliminating the oil tax on the consumers.  The American economy would also benefit from lower prices, so that is totally positive for global growth. And equally important for America today is that if all those trillions of future dollars we use to purchase foreign oil could stay home, our economy will see great growth and tax revenues for our government will increase substantially without tax rate increases.

Monika Gonda, Director North America Gas Summit, The Energy Exchange: What do you see the potential of LNG exports to be in the near- to mid-term and how will it impact North America’s and global energy future?

Robert A. Hefner III, Owner and Founder, The GHK Company: If we did what I would like to do, we would be using all the gas we develop so LNG imports and exports would be minimal. We can develop U.S. natural gas fast enough, we have done the numbers, there is no question. There is plenty of resources, there is plenty of gas, it just needs a fair price compared to oil. I always thought natural gas should have a little premium compared to oil, because it is cleaner and it is domestic. An environmental and a national security premium, but even if we get back to half or three-quarters the price of oil, we can develop all the natural gas this nation can use for the next hundred years. It depends on domestic demand what our LNG exports will be, but ever since El Paso put in the first LNG plant back in the 70s, I said that it is absolutely idiotic and absurd to be importing LNG to the US because of our vast, undeveloped domestic supplies. If anything, we should export it and if we don’t develop the demand in this country, the export business could be quite large. Either way, the fact that there is all this shale gas around the world means global prices will be rationalized, and it is going to change the entire global market as a result of spot deliveries being able to be flexible and going anywhere in the world to meet demand.