Speaker 1:
From the library of the New York Stock Exchange, at the corner of Wall and Broad Streets in New York City, you're inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership, and vision in global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs and harness the engine of capitalism, right here, right now at the NYSE and at ICE's exchanges and clearing houses around the world. Now welcome, inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
If you heard our conversation a few weeks ago with Citadel Founder and CEO, Ken Griffin, you knew I was down in Boca Raton, Florida, attending the annual gathering of the Futures Industry Association, or what everyone in our industry knows was FIA Boca. That's where the world's top traders and risk managers gather every year to discuss the markets, the asset classes and the trading strategies needed to hedge against geopolitical shock, impacts to the supply chain, the potential effects of climate change and the underlying commodities that everyone across continents trade and consume 24/7 as the global economy turns.
Our company, Intercontinental Exchange, or ICE, is a major player in this trading ecosystem ever since Jeff Sprecker founded the company in 2000, after acquiring the defunct Continental Power Exchange, reimagining and rebuilding it in the wake of the collapse of Enron. Jeff pulled off that magic with the help of the world's major banks and the world's major oil companies, who were all looking for a better way to trade. With its speed, efficiency, and transparency, ICE filled that bill.
Given ICE's leadership role in the industry, every year it hosts what's known as the ICE Energy Breakfast, where we feature some of the leading voices in trading capitals to share knowledge and insights into what drives the major financial and political decisions that are moving the markets. Our guest at this year's Energy Breakfast was Mike Sommers, president and CEO of the American Petroleum Institute. API represents all segments of America's natural gas and oil industry, which supports more than 11 million US jobs. It's backed by a grassroots movement of millions more of Americans. API's nearly 600 members produce, process and distribute the majority of the nation's energy, focusing on accelerating environmental and safety progress by fostering new technologies and transparent reporting.
The API, based in Washington, was formed in 1919, as a standard setting organization and has developed more than 800 standards to enhance operational efficiency and sustainability. The API's leader, Mike Sommers, has been in his post since 2018. He joined API from his prior role, leading the American Investment Council, which represents the nation's top private equity and growth capital firms. No stranger to Washington, Mike has served as chief of staff for the former Speaker of the House of Representatives, John Boehner and as a special assistant to President George W. Bush at the National Economic Council.
Down at FIA Boca, Mike was joined in conversation with former US Senator Kelly Loeffler, from Georgia. Kelly, too, no stranger to Washington or the futures individual. For 17 years, she held a senior leadership role at ICE, helping it grow from a virtual startup to its initial public offering at the NYSE in 2005, then leading the functions of investor relations, marketing and communications as ICE grew to its current market cap, somewhere now in the neighborhood of $80 billion. While sometimes our Senators come into office with a background in law, medicine, or just pure politics, Kelly was that rare lawmaker who felt right at home amid the world's most sophisticated futures markets and clearing houses, international trade organizations, but also agriculture and energy, the kind of expertise needed much more in the highest levels of government.
In their conversation, Mike and Kelly talk about global oil production, refinement and consumption, the role that the industry plays in the American economy and the controversial topic of shipments of liquified natural gas out of the United States, the bipartisan reform of opening overseas markets to American crude, and the fact that, in this election year, yes energy is on the ballot. In a minute, after the break, Inside the ICE House will take you down to Boca Raton, Florida, to go inside FIA Boca to listen to the ICE Energy Breakfast, for the conversation between American Petroleum Institute President and CEO, Mike Sommers, and his interviewer, former US Senator, Kelly Loeffler. That's all coming up right after this.
Speaker 3:
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Josh King:
Welcome back. As I shared in the introduction, we're going to take you now to Boca Raton, Florida, to sit in at the ICE Energy Breakfast at FIA Boca, the annual gathering of global leaders of the futures industry. We've done this a couple times in the past, bringing you conversations with cryptocurrency specialist Michael Casey, author of The Truth Machine, and another year when we featured Jeff Sprecker in conversation with then US Secretary of Agriculture, Sonny Perdue. Fast-forward to the present, and our guest for this early morning ICE Energy Breakfast conversation was Mike Sommers, president and CEO of the American Petroleum Institute. The next voice you hear will be that of former US Senator, Kelly Loeffler, leading the conversation. Let's now go to Boca.
Kelly Loeffler:
I am so honored to be able to have this chance to interview Mike Sommers, the CEO of the American Petroleum Institute. Mike, you have been in the news a lot lately. Just by way of introducing yourself and API, and the work that you do, can you just talk a little bit about how you represent this great American industry? We talk about made in America. There's nothing more American than what's happening in the energy industry, the natural resources we're blessed with, and then the innovation that's coming out of the industry by the companies that you represent.
Mike Sommers:
Kelly, thank you so much. It's great to be here at FIA. I've been to this conference a few times before and I really appreciate your hospitality and of course, your great service to our country as well. I want to thank Walt for his leadership of FIA, and Chairman Benham as well, thanks for being here. Thanks to ICE, of course, for hosting this breakfast.
The world consumes 100 million barrels of oil every single day. The United States, it was just reported by the Energy Information Agency, at this point, the United States is now the largest oil and gas producer in the world. In fact last year, the United States reached record levels of production. We hit 13 million barrels of oil production every single day, here in the United States. That is something, I think, that the world should be celebrating. We're an industry of innovators that are trying to do everything that we can to meet the energy needs of not just American consumers, but world consumers.
Every single day, my member companies, which include the biggest oil and gas companies in the world, Exxon, Chevron, BP, Shell, but also those that move the products in the midstream space and those that refine the products in the downstream space. We represent these people every single day who are working to ensure that the United States can be energy independent. Our challenge every day is to make sure that we have the right environment from a political perspective, but also we're the global standard setter for the oil and gas industry as well. Half of our revenue at API, half my people do standards and certification for the industry. For people who are in the oil and gas industry, they know API mainly through the standards that we set, not necessarily through the advocacy that we're pursuing in Washington, DC.
Kelly Loeffler:
Well, you've had such an important voice in really talking through the media and through your industry group about what's really happening in the industry. The contrast between the current Administration and the past Administration, in terms of the embrace of the petroleum industry and what it means to America is pretty stark, but then when you put it up against the fact that we're in hot wars around the world and we have this energy at our disposal. Can you talk about those two shifting dynamics? There's the policy side. By the way, you mentioned we're up to 13 million barrels a day of production. In the 1920s, that was about a million barrels per day, and that was celebrated. There were Wildcatter movies made. If you do look at the league charts of world oil production, America's number one in oil and natural gas. China is in the top six of both. Russia is second in both. Okay, these are strategic assets that we have.
Let's take the policy perspective, before we go into the foreign policy implications outside of the United States. At the State of the Union, Biden talked about lowering our emissions by half by 2030, in the next seven years. Eight, six years. I guess it's 2024 already. How do you think about, in your industry, reaching those targets when many of your companies are actually leading in renewables?
Mike Sommers:
Let's put those numbers in perspective. As I said earlier, 13 million barrels of oil every single day. It was only 15 years ago when the United States was only producing five million barrels of oil every single day and that number was trending down. But then, something came along, it was an innovation in the industry, it was hydraulic fracturing and horizontal drilling. The United States and the producers here in the United States were able to find more of these resources, and we've been able to continue to increase production year-on-year. That was a revolution, that we're now drilling 3000 feet down and 3000 feet across, and producing more of these products that Americans use every single day.
It was unheard of at the time. Kelly, when you and I were in seventh grade, I remember my seventh grade teacher telling me that we would be out of oil in the year 2000. A lot of people, at that point, when we were all growing up, talked about peak oil, peak oil. Somebody in the energy industry once said to me that, "I'll tell you when peak oil is when you tell me when peak innovation is." This industry is constantly innovating and improving the processes to produce more oil and gas.
But what's that meant from an environmental perspective? Because that's important too, and we're focused on environmental performance as well. Because we've been able to find more of these resources, because natural gas comes along with oil a lot of times, we've also become the number one producer of natural gas. As a consequence of that, the United States has been able to lower our emissions at a greater rate than every other country in the world combined. Why? Because we have replaced coal as the primary source of energy that we use in our homes on a daily basis and in our manufacturing facilities with natural gas, and natural gas is 50% more clean than coal.
It's also had tremendous, as you pointed out, Kelly, national security benefits because we produce so much natural gas. Just to give you some perspective of how much we produce, in Pennsylvania alone, it is estimated that there's 400 years of natural gas supply for the United States, just in that one state. As a consequence of that, we're able to export these resources overseas to our allies. In fact, our surge of natural gas to Europe during the terrible war in Ukraine has gone up 141% since the Russian aggression on Ukraine.
What has happened to the natural gas price? It's actually gone down. That's what's amazing. Natural gas yesterday closed at 1.75. Natural gas prices have actually gone done and that's because markets work. When you have more markets, we're going to be producing more in the United States.
Kelly Loeffler:
Well, you bring up an important point that I wanted to get to. In January, the Administration decided to halt the expansion of LNG terminals and shipments outside of the United States, which seems like a pretty strategically important decision. How does the industry respond, in terms of having that supply available to our allies but not sharing it? What can we do to make sure that these aren't pro-Russia policies?
Mike Sommers:
Absolutely. I want to make one comment about an important policy change that happened in 2015. I would argue this was the most important policy change that the energy industry has seen in decades. It was done under President Obama with a Republican House of Representatives, when we lifted the crude oil export ban. The United States, up until that point, from the 1970s, we had a ban on the export of crude oil. That was hydraulic fracturing and horizontal drilling were very important, but opening those overseas markets to American crude was also very important. We estimate that we would be producing, here in the United States, three million barrels fewer today if we didn't open those markets. That was a bipartisan reform that was done because Barack Obama wanted something and House Republicans wanted something, the lifting of the crude oil export ban. It was a seminal change that those markets were able to be opened.
Now, President Biden recently imposed a ban on new export terminals to export natural gas to our allies overseas. I cannot think of a worse policy decision that this Administration has made during their three years in office and I'll tell you why. Because one, the United States has promised and committed to our allies in Europe that we would continue to supply natural gas to them during this terrible crisis. As a consequence of this decision, Germany is actually talking about already going back to piped gas from Russia. We have Japan saying that they're going to be importing natural gas now from Sakhalin Island, which was seized from Exxon during the Russia Ukraine conflict at the very beginning. We're seeing almost a retrenchment, both in Europe and in Asia, to go back to supplying the Putin war machine. From a national security perspective, it's just terrible, terrible policy.
Then, if you haven't been to the Gulf Coast of Louisiana or Texas to see these incredible new LNG terminals that are going up all over the place. I actually visited one of these before the war. It was incredible. The war was being rumored to happen and it was incredible that one of these terminals was actually filling an LNG tanker to go to Europe to supply France. Where was it going to land? It was landing in Dunkirk, that incredible, historic location from World War II. What an incredible symbolic thing that American natural gas, again, supplying our European neighbors and helping them get through a terrible energy crisis that they were dealing with.
From a national security perspective, from an American jobs, from an American leadership perspective, this was a terrible, terrible decision and needs to be reversed as quickly as possible.
Kelly Loeffler:
It is an election year. I think you've said energy is on the ballot. We have been relatively blessed with low energy, as you mentioned 1.75 per NMBTU, oil's at about 80 bucks a barrel. Amid these conflicts, we used to talk about peak energy, we used to talk about OPEC, now Americans are pretty comfortable I think with where things are, although energy bills are high, inflation is high, so it's a very personal issue.
You recently did some interesting polling and API reached out to over 1000. Any poll above 1000 people, I think has a really good statistical sample. I think you did it with IPSOs. It really showed the support for an all of the above energy portfolio. Do you want to talk a little bit about American attitudes towards energy? Maybe we get into some of the energy portfolio renewables and other topics.
Mike Sommers:
Yeah, absolutely. Our poll basically suggests that 90% of the American people want to continue to develop these resources here at home. They know how important it is from a national security and a consumer perspective. Of course, when you have more of it, it puts you in the driver's seat internationally, so there's broad support for the oil and gas industry and what we do here at home.
But another thing to really think about here, Jigger Shaw, who runs the loan office now at the United States Department of Energy, they're spending billions and billions of dollars, almost $200 billion right now, on future energy sources. He said last week that, "By 2050, we will need 50% more energy than we have today." Why is that? Basically, for the 20 years prior, we'd had basically leveled off in terms of the amount of energy that the United States consumed. But AI and data centers are going to be consuming a lot of energy into the future. They're predicting that we're going to be increasing energy demand by three to four percent every year until 2050. That's 50% by 2050. Your kids are going to use more energy than you do because of all of this new technology coming on. One NVIDIA chip, for example, the energy that it uses is the same amount of energy that you use in your home every single day.
World energy demand is going up not down. The Energy Information Administration from the Department of Energy suggests that even in 2050, we're going to be getting 65% of our energy from oil and gas. The real question is, it's not whether we're going to need oil and gas, the question is whether or not we're going to getting it from the United States? I think most policy makers come to the conclusion, and Americans come to this conclusion, that they'd prefer to get it from here at home rather than getting it from a hostile regime like Russia.
There's broad support for these policies. We're a bipartisan organization, we will work with whoever is elected in November, of course, as we do now with the Biden Administration. But I do think that the American people need to hear some of these key energy facts because I do think energy is on the ballot, and it's going to continue to be on the ballot, and if we don't get these policies right, we're sowing the seeds for the next energy crisis.
Kelly Loeffler:
Yeah. There's clearly two distinct visions. There's we're going to end fossil fuels, and there's drill, baby, drill. It always ends up somewhere in the middle, that's just the nature of Washington. One thing you mentioned was data.
There was an interesting op ed, y'all may have seen, in The Wall Street Journal, about the International Energy Agency. A respected body, in terms of its forecasting and some of the work it does around fundamentals in the sector. Do you want to talk a little bit about that controversy and the fact that some of its forecasts were relied upon by the Administration's forecasts for declining energy demand, fossil fuel demand, in the face of having two billion more people on the planet by 2050, where per capita usage or energy is only going to be going up?
Mike Sommers:
The International Energy Agency was actually founded by Henry Kissinger, right after the Arab oil embargo. It was really meant to be the international agency that provides data so that people can make plans for the future. I think unfortunately, it has become completely politicized over the course of the last couple of years and not a reliable source for data.
For example, they put out a net-zero scenario a couple years ago and advocated for certain policies to meet that net-zero scenario. If you go to page 55 of that net-zero scenario, one of the assumptions that it puts forth is that the world will be consuming 6% less energy in 2050. Now we all know that that's not true, it was based on a faulty assumption. But IEA has become, unfortunately, so politicized that it's just not a reliable source of data anymore.
Right now, as I said at the beginning, the world consumes 100 million barrels of oil every single day. The American Energy Information Agency suggests that, by 2030, we're going to be using 106 million barrels of oil every single day. Again, demand is going up because we're all going to be using more energy, and as you said, two billion more people are going to be on Earth. They're going to be desiring more energy and needing more energy going forward. We do need a reliable dataset, and unfortunately IEA has just fallen down on the job.
Kelly Loeffler:
Well, this is a room of people who understanding trading and risk management, so imagine the EIA number that comes out, the storage number that comes out is wrong. Think about the investments and the trades that you place on that, it'd be disastrous, in the short term and the longterm.
Mike Sommers:
Absolutely.
Kelly Loeffler:
Let's shift over to talking about China for a minute. This came up, I was reading the FIA's magazine and at the end they summarized 2023 volumes. I'm an analyst, so I love data. I don't know if anyone else reads that page. The top 10 commodity contracts in the world were all from China, except for the ICE Brent Crude futures contract. They all trade above a quarter-billion contracts a year. China's sixth in world oil production, fourth I think in natural gas, I could have those flipped. But that really surprised me, in terms of China's, the numbers drop off so they're not a huge producer, but on the EV side, China's overtaking all the EV makers and they have the rare Earth minerals. Can you talk about how you look at China in terms of where that's going and our strategic opportunities with energy there?
Mike Sommers:
I think there are a lot of commentators talking about this incredible transition that China is making to really transition their vehicle fleet to these EVs that are primarily made by a company called BYD, that are trying to get into the American market.
Let's put this in perspective, though. The reason why China is doing this fast transition to EVs is because they want to be energy independent. China currently imports 10 million barrels of oil every single day. They don't like that. They want to be energy independent. They're plugging in to a grid that is primarily based on coal. They're building a coal plant a week in China. This is not an environmental success story. This is about China wanting to be energy independent based on their current power grid, and they don't want to be importing that much oil anymore. That's the first thing.
The second thing is we have no problem, as an organization, with the EVs. We know that there are going to be a lot of EVs on the road. For many consumers, it makes sense. If you're only commuting 30 miles a day, it makes sense. But let's dispense with the fiction that this is an environmental thing, these EVs. Because most of the times, as you mentioned, they require a lot of rare Earth minerals that are not found in the United States, and certainly not processed in the United States. They're processed in places that have much lower environmental standards.
Toyota has run the numbers on this and I think it's really instructive. For the rare Earth minerals that you can find in one Tesla, you can make 90 hybrid vehicles, like a Prius. If you produce 90 Priuses, you're actually going to be reducing greenhouse gas emissions 37 times more than that one Tesla vehicle. The right next environmental step is for us to be pursuing hybrids. That's what we need more of on the roads. It's better for the environment. EVs, you're skipping a step. The American people aren't ready for a full transition to EVs. It might make sense for some consumers, but right now this is not something that the American people are demanding. We can do better by the environment if we're pushing people into hybrids rather than into EVs.
Kelly Loeffler:
Well, that's a great transition to renewables. There's a lot of talk about renewables and you see some pull back on the wind side, we've seen some fallout from that. The farm I grew up on, Illinois, you fly in now and there's windmills everywhere. You look around and you see ... What is actually working? Solar is rising. Oddly, nuclear is rising and that's great, but one of the only new nuclear plants in the country is in my home state of Georgia. Wood is rising as an input, which is unfortunate but that's what happens when energy prices spike. Can you talk a little bit about what renewables actually are going to work at scale?
Mike Sommers:
Yeah. Again, let's put this in perspective. There's a lot of talk about this so-called energy transition. The last time we had an energy transition was in the mid 1960s, when oil and gas overtook coal as the primary source of energy in the United States. In 2023, the world consumed more coal than it has in the history of time. In 2024, the world will consume more coal than it did in 2023. The energy transition previous to that was in 1885. That's when we switched from wood to coal. The world will consume, in 2023, more wood than it did in 1885.
That just goes to demonstrate that these energy transitions are very rarely transitions. What they are is we're adding new sources of energy to the power mix. Yes, wind and solar are going to be a key part of that going forward. A key part. As I said, we're going to need more energy because we're going to be demanding more energy into the future so we need new sources. But we've never gone ... Forget the computer models. Historically, we've never gone from an dense source of energy to a less dense source of energy. We went from wood to coal, which was more dense. Then from coal to oil and gas, which was more dense, had more energy density than coal did.
The right transition, as you said, is actually to a more dense form of energy like nuclear. But we know how hard it is to site a nuclear plant. How long did it take to build Vogtle in Georgia, 30 years from permitting to completion? Everybody whose looking at that nuclear plant is thinking, "Are we really ready for a 30-year commitment to one plant?" I think what you're going to see is a lot of these new sources of energy come on, but the key for all these data centers is that it has to be dispatchable power. You're going to need something that actually runs 24/7. You can't have the air conditioners go off in a data center and expect that it's going to work. You're still going to need natural gas into the future.
Here's the secret. Natural gas is the transition. We're going to be using a lot of natural gas going into the future. And yeah, we're going to need a lot more windmills, and we're going to need a lot more solar as well because energy demand is rising and population is rising.
Kelly Loeffler:
Well, I want to ask about hydrogen because that's been in the news a lot lately and I think it's interesting. But to your point, the rise of coal, the record year we had in 2023 and on track for '24, meant that carbon emissions globally rose despite the United States coming down again. I think until we solve for that next incremental thing that can replace it, is hydrogen possibly that fuel?
Mike Sommers:
Well first of all, you mentioned it, that's one of the reasons why this LNG ban is so damaging. We want to export American environmental progress to the rest of the world. When you're importing natural gas from the United States, you're usually replacing coal as your primary power source. From an environmental perspective, it makes absolutely no sense either so we have to get that ban lifted as quickly as possible because other people are filling the need. Qatar is about to overtake the United States again as the largest LNG exporter. We really can't let that happen.
Hydrogen is going to play a key part of the future as well, and API member companies are going to be the primary investors in the new hydrogen economy. But unfortunately, while the Inflation Reduction Act got this right and they put a new tax credit in place, the so-called 45V tax credit in place, unfortunately the Administration's rule making process, one is too slow. But two, it actually dis-incentivizes as currently written, hydrogen produced from natural gas. The amount of investment that could occur in hydrogen could go from billions of dollars ... One company is planning to invest $10 billion into hydrogen alone, or they'll invest zero.
Kelly Loeffler:
Wow.
Mike Sommers:
Policy matters and policy from Washington matters, and we got to get these rules right if we want to enable the hydrogen economy going forward.
Kelly Loeffler:
Wow. Well, speaking of things that matter, jobs matter. America depends on the energy sector, not just for GDP growth but for employment, 10 million. Then for every person employed directly, there's another three to four jobs created. These are incredible careers, well paid careers and opportunities. Can you talk a little bit about what's it like trying to get people to come into this sector? What do you need in the sector?
Mike Sommers:
Yeah. The energy industry is about 8% of American GDP. I like to say that it's the first 8% because if you don't have energy, you really don't have anything else. There needs to be continued investments into this industry going forward. And we need kids who are interested in going into oil and gas in particular, and there's tremendous opportunity. As you said, the average job in the oil and gas industry pays 50% higher than the average job in the rest of the economy. These are good paying jobs, we need STEM students. We're a partner with an important program in growing the number of STEM kids that are pursuing STEM in elementary school and into high school, and hopefully on to college. We also have a minority serving institution program at API, where we're training kids at HBCUs in particular to join the oil and gas industry. It's an exciting industry and it's one where the technology is only continuing to grow.
Josh King:
That's our conversation for this week. Our guest was Mike Sommers, president and CEO of the American Petroleum Institute, in conversation with former US Senator, Kelly Loeffler. If you enjoyed this conversation, I also spoke at FIA Boca with Citadel Founder and CEO, Ken Griffin. A recent move to the Sunshine State set the backdrop for episode 406, with Ken expounding on the decision to head to Wall Street South, also discussion Citadel, the NYSE, Harvard University, and so much more. If you like what you heard on that podcast or this conversation with Mike and Kelly, please rate us on Apple Podcasts so other folks know where to find us. If you've got a comment or a question you'd like one of our experts to tackle on a future show, make sure to leave a review. Please email us at [email protected] or tweet at us @icehousepodcast.
Our show is produced by Lance Glinn, with production assistance, editing and engineering from Ken Able. Pete Ash is the director of programming and production with ICE. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening, we'll talk to you next week.
Speaker 1:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of the information and do not sponsor, approve, or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purposes of length or clarity.
