On Monday, Feb. 10, PSP Chairman Don Evans delivered the keynote address at the 2020 Texas Transportation Forum in San Antonio, TX. His speech, titled “The Permian Promise,” shared his views on why this area is not only critical to the continued success of the Texas economy, but to the United
States and our national security, as well as markets across the globe. His remarks are as follows.
Thank you, Bruce, for the great leadership you provide our state and our vital transportation system – and thank you for supporting the amazing energy transformation that is taking place in the Permian Basin today.
I salute you and Governor Abbott for providing additional transportation funding that will help us save lives on some of the deadliest roads in Texas and support massive economic opportunity that is driving unprecedented capital investment and job growth across the entire state. Bruce, you call it the “Permian Promise” — and that promise is delivering big benefits for every corner of our state and for our country.
Thank you all for the opportunity to talk with you about how our Texas energy industry has become a global game changer – and the implications that has for all of our transportation and infrastructure decisions.
We just last month ushered in a brand-new decade. I am confident the 2020s will be full of promise and opportunity for our state and all our citizens. I can say that because of what I believe was one of the most overlooked and under-covered major strategic shifts of the past decade. It’s an incredible story that is literally changing the world – and that story is being written right here in Texas.
Texas energy producers and entrepreneurs are leading an energy renaissance that has made America the number one oil and gas producer in the WORLD. This, in turn, strengthens the national security, economic security, and energy security of this great nation. Anyone old enough to remember the sky-high prices and hours-long gas lines of the 1970s, when the foreign countries who make up OPEC had us over a barrel, will realize how truly remarkable this story is.
Meghan O’Sullivan is a Harvard professor – please don’t hold that against her, she also served as a Deputy National Security Advisor in the Bush Administration. She has written a groundbreaking book titled “Windfall…How the New Energy Abundance Upends Global Politics and Strengthens America’s Power. She writes, and I quote: “The scale and swiftness with which the United States has moved from being an energy supplicant to an energy super-producer is stunning; in modern history, it is rare for the strategic position of a single country to change so dramatically in such a short period.”
And I have been privileged to watch this story being written over the course of my own life and work. You might say I was born into it.
My father landed on Normandy Beach a couple weeks after D-day. As a captain in the 1374th petroleum distribution company, his job was to help lay fuel lines across France. Those lines were vital to fuel General Patton’s army and the Allies advance — and our ultimate defeat of Nazi Germany. People often don’t think about how much our military strength depends on fuel. Today, the US military is the largest institutional consumer of oil in the world, using more than 100 million barrels of oil every year to power operations from aircrafts to ships to ground forces.
At the time of World War II, the United States was in a position of great energy strength—we were producing about 75 percent of all the oil in the world. 25 percent came from other countries, including Russia — and the Middle Eastern fields were just beginning to be developed. Over the next three decades, the situation changed dramatically.
Demand exploded to more than 10 times its post-war level, and America’s share of production declined. In the Texas Permian Basin, our crude oil production peaked in 1972 and then began a long decline.
When President Bush and I moved to Midland in 1975 to start our careers in the oil and gas business, a foreign cartel — OPEC — was pretty much calling the shots. As we realized in a major way during the oil embargo, America’s interests and those of our energy consumers were at the mercy of the actions of foreign countries.
Texas is all too familiar with how bad that dependence can be. I became President of Tom Brown in 1979 and by 1980, Tom Brown had a larger market cap than Ford Motor Company.
In the early 80s, the Saudis tried to manage oil prices by dramatically cutting production. When they finally gave up several years later and opened the floodgates, oil prices collapsed – and it took down the Texas economy. Banks went bust, real estate values dropped, S&L’s failed, and we lost thousands of jobs – it was a terrible time. Tom Brown survived but just barely – and it took years for our state to recover.
By the early 2000s, when I served as Secretary of Commerce in the Bush administration, America’s oil and gas production was still declining — and we didn’t see anything on the horizon that would ever change that picture. About that same time, wildcatting oilman George Mitchell was asked what America’s energy landscape would look like in 2020. That means Mitchell was asked what the energy outlook would be as we meet here in this room today. “Oil in the United States is very hard and expensive to find,” he replied. “…a reversal of declining production doesn’t seem possible.”
During those early 2000s, I traveled the world meeting with leaders and often discussing energy. I learned that much of the world thinks of energy as a strategic weapon, something to be used to gain advantage over other countries. America has a much different view. We think of energy as powering our economy…putting gas in our cars…fueling our daily lives.
At the time of my government service, our American energy position was not one of strength. Falling American production at a time of rising demand meant other countries felt they had the energy upper hand. I remember a private dinner at Russian President Vladimir Putin’s dacha. I said to him, do you realize that you have a full one-third of all the natural gas reserves in the world? President Bush chimed in – did you realize that Vlad? It was very clear that yes, he knew – and he knew it was a weapon that he could use to his advantage.
The situation is much different today, largely because of what we have done here in Texas. What was viewed as impossible as recently as the year 2000 is happening before our eyes. The United States has surpassed Russia to become the world’s largest natural gas producer and is projected to become a net exporter within this decade.
The Permian also helped lead U.S. oil production to a record 12.8 million barrels per day in late 2019, making us the number one oil producer in the world, ahead of both Russia and Saudi Arabia. For comparison, the US last produced 10 million barrels a day back in 1970, then began its years of decline. I mentioned earlier that our Texas Permian production peaked in the early 70s at 2.2 million barrels a day then dropped for years – by 2008 it was down to 780,000 barrels and was projected to fall even further to 500,000 barrels.
Today the Permian is producing 10 TIMES that — more than 5 million barrels a day. That’s 35 percent of ALL production in America. If the Permian Basin was a country, it would be the third largest producer in the world.
So what changed the equation? Our great state of Texas. The resources, the risk-taking, the ingenuity, the innovation all started right here in the Lone Star State.
And it’s a credit to our Texas leaders for creating an incredible business environment and culture where people feel comfortable taking risks, investing hard-earned capital to explore and try something new. Texas has always been a place that believes in free markets and open competition. We know the role of government should be limited, that taxes should be low and regulations stable and fair – so that private industry has the confidence to invest, create and build.
We have no state income tax and throughout our state’s history, we’ve been blessed with visionary leaders from both parties…Governors Abbott, Perry, Bush…Governors Connally, Briscoe, Shivers…who understood the need to foster a strong business climate with pro-growth policies. Our state is blessed with great leaders in the House and Senate and state agencies, from the Lt. Governor Dan Patrick to public servants like your chairman Bruce Bugg.
Texas is so unique and different. I’ve had the privilege of traveling the world, and I’ve noticed that when asked where they are from, most Americans from other states will say: America. Texans are — of course — proud Americans too, but when we’re asked where we are from, a lot of us say: Texas.
That reminds me of another story, when President Putin visited Texas for the first time. President Putin had been the first leader to call President Bush on 911, and later that fall, President Bush invited him to the ranch in Crawford. President Putin asked me: How has America accomplished so much in only 200 years? I told him our achievements are because of our freedoms: the freedoms guaranteed in our Constitution, the free enterprise system, the competitive free spirit that thrives across our country and especially here in Texas, and I told him that the people of America are good people, and they wake up trying to do the right thing every day.
I grew up in Texas, and I always felt Texans are good people. This is a special place, whose leaders and landscape and mindset all say: The sky’s the limit, which also happens to be the motto of my hometown of Midland.
And no one stands out more to me as representing that optimistic Texas mindset than George Mitchell.
Today, we call him the Father of Fracking – but at many points during Mitchell’s career, people just called him crazy. He initially made his fortune drilling in places where others had failed– one field notoriously called “The Wildcatter’s Graveyard.” He just stuck with it…and kept on drilling.
Later in his life, Mitchell spent decades and millions doggedly experimenting on the best ways to get natural gas out of shale rock, primarily through hydraulic fracturing.
Before Mitchell, countless others had written off the gas in the Barnett Shale, thinking it was not commercially viable or profitable. At one point, even Mitchell’s own son, a geologist, argued with his father, believing he risked driving the company into the ground. But over time, Mitchell was able to cut costs, operate more efficiently and produce more. People started taking notice – maybe that crazy George Mitchell wasn’t so crazy after all.
He embodies that Texas spirit that’s still at work in the Permian today —never give up, keep pushing the envelope, take challenges head-on — then overcome them.
Energy historian Daniel Yergin said Mitchell’s breakthrough provided “the potential for a century’s worth of inexpensive, environmentally attractive energy.”
Here in our state we’ve been blessed with this great resource – and it’s unbelievable how vast it is. The Permian Basin spans over 80 thousand square miles in west Texas and southeast New Mexico. 10,000 of those miles are considered the highest value acreage. Twenty years ago, when most of our wells were vertical, we typically produced about 250,000 barrels of oil per well, which added up to 2 to 3 million barrels per square mile. Today, with horizontal drilling, the number is four to five times that, yielding 8 to 10 million barrels per square mile. And remember – we have 10,000 square miles that are considered prime locations. And here’s a final thought on this amazing resource – even with remarkable increases in the economic recoveries of oil, we are still only recovering about 10% of the oil in place.
That’s why I view the Permian as a giant strategic petroleum reserve for our country. I like to say the Permian today is the world’s largest secure supply of oil in the world, produced in a stable, democratic nation that is governed by the rule of law. Given recent events in the Middle East… Iran’s attacks on Saudi Arabia’s oil fields…the volatile situation in places like Venezuela and Iraq, it’s easy to see why I emphasize “secure.”
And this new American energy abundance is changing the world as we know it in many important ways: economically, environmentally and strategically.
Economically, it has sparked growth, created jobs and generated record tax revenues.
In Texas today, the oil and gas industry directly or indirectly supports one in every six jobs. (Perryman) And our oil and gas industry set an eye-popping record last year: it paid a combined total of more than $16 BILLION in state and local taxes and state royalties in fiscal year 2019 – the highest in Texas history, and the Permian Basin production continues to increase. Those dollars go to public schools all over our state –$1.5 billion directly to schools last year — and to health services and law enforcement and transportation, and they benefit every single Texan, no matter where they live in our great state.
The Permian is driving what is projected to be an incredible increase in funding for roads. Since voters approved Proposition 1 in 2014, a whopping more than $7 billion has gone into the State Highway Fund from oil and gas severance taxes. The comptroller expects to make deposits totaling more than $3.2 billion over the next two years to the state highway fund to pay for additional transportation projects across Texas.
And I haven’t even mentioned the billions that have gone from oil and gas taxes into the Rainy Day fund, supporting everything from the Teacher Retirement system… to vital water projects across our state… to helping Texas communities far from the Permian Basin recover in the aftermath of Hurricane Harvey.
We’ve all heard the saying that what happens in Las Vegas stays in Las Vegas. That’s not the case in the Permian. What happens there touches EVERY corner of Texas. Permian energy production is spurring incredible investment in manufacturing up and down the Texas gulf coast – more than $8 billion in 2019, another nearly sixteen billion projected this year – much of it driven by LNG coming from the Permian and other oil and gas production in Texas.
Large scale channel-improvements are underway in many of our state ports, from Corpus Christi to Brownville to Houston and Sabine-Neches. The infrastructure boom at Corpus Christi alone pushed crude oil exports there to a weekly record of 1.59 million barrels per day in late December 2019. At times, those Corpus volumes have added up to more than half of all crude oil exports moving out of the United States on a weekly basis – think about that, more than half of the oil exports in the country coming through Corpus Christi!
Another economic benefit goes directly to consumers. Abundant, lower cost domestic energy is the equivalent of a “tax cut for the world.” The rise in U.S. production has helped stabilize prices. When oil falls from 100 dollars a barrel to the mid 50s, and natural gas falls from $8.00 to $2.00, people pay less for everything from gasoline… to airplane flights… to shipping costs for all those boxes they order from Amazon and millions of consumer products. It is like a $500 billion/year tax cut, more than $2 trillion for the world economy.
Energy has also played a central role in lifting hundreds of millions of people out of poverty, as energy fuels economic growth and opportunity in developing countries. As the global economy grows, so does its demand for energy. And natural gas and oil provide that needed energy across every sector of the economy, from transportation, to residential and commercial, to industrial, to power generation…for generations to come.
Environmentally, Texas energy is also helping our nation reduce emissions. The increased use of natural gas, which often replaces coal, has helped reduce CO2 emissions — so even as America’s energy production is setting new records, emissions are dropping. The US EIA energy outlook forecasts Co2 emissions falling in both 2019 and 2020. To put that in broader context: our nation’s Co2 emissions haven’t been this low since more than 30 years ago, in 1987. (source: API blog on emissions)
As the International Energy Agency said: “The decline in energy-related CO2 emissions in the US in recent years has been one of the bright spots in the global picture. One of the key reasons has been the increased availability of natural gas, linked to the shale-gas revolution.”
And this progress can be replicated across the world as natural gas produced as a byproduct of increasing oil production in the Permian will be able to replace coal and help other nations reduce their emissions as well.
Strategically, growing Texas and domestic oil and gas production is strengthening America’s position and power in the world.
Meghan O’Sullivan, in the book I previously referenced, Windfall, makes the case that America’s increasing domestic production has boosted both our hard and soft power, and diminished OPEC’s influence over oil markets. Our growing supply of shale gas has impacted gas markets and reduced the influence of other countries, including Russia. My conversations with President Putin might be much different today. Our new energy abundance and ability to export both oil and gas also creates opportunities for broader engagement with other countries, including China.
As Texans, we should be excited that Texas producers are helping drive these economic, environmental and strategic benefits for our country.
And this is a gift that will keep on giving. I want to emphasize that what is happening today is different from the boom and bust cycles of the past. Oil and gas are commodities and will always have some volatility. We’re seeing some of that with lower prices right now because of the coronavirus and resulting slowdown in China. But we need to take the long-term view. Both the majors and independents are committing billions of dollars in capital to develop the Permian. The pace of capital spending is approximately $50 billion/year. It remains one of the lowest cost areas in the world for production, so if the industry is drilling anywhere in the world, they are going to be drilling in the Permian.
And the projections show the world is going to need MORE of Texas’ oil and gas resources, not less. The global population is expected to grow from seven and a half billion people to almost nine billion during the next 25 years, and demand for energy will continue to rise. The IEA – described as the gold standard of energy analysis – produces an independent outlook that incorporates expected changes in policy and technology. IEA projects oil and gas demand will grow by more than 25% and make up about the same share of the total energy mix by 2040 as it does today.
Natural gas and oil accounted for more than 55% of global energy in recent years (2017, API), and the US EIA expects that percentage to grow slightly to 57% by 2040. Renewables are projected to grow faster than other fuels, but will still provide less than 20 percent of all the world’s energy needs by 2040.
Recently, some short term, narrow-minded thinkers are saying oil could go the way of tobacco. I say that comparison is not based on reality or science. Tobacco is optional – people don’t NEED it to live their lives. Unless we want to stop airplanes from flying and factories from manufacturing, we need oil and gas. I want to continue to deliver energy to improve lives and develop economies and provide a better world for all –to do that, the world is going to need a lot more oil and gas for decades to come. There is simply no alternative capable of providing enough energy fast enough to meet the demand.
I believe it’s time for Texas to continue to show our visionary leadership, by investing in the infrastructure and transportation projects necessary to bring our energy abundance to market — and to do so in the most responsible way possible.
As I said at the beginning, your investment in improved roads will save lives on some of the deadliest roads in Texas – and will help bring Permian energy to market to benefit the entire state for decades to come. I want to again thank Governor Abbott, Chairman Bugg, Commissioner Alvin New, Commissioner Laura Ryan, Commissioner Robbie Vaughn, and local legislators from both parties for their leadership and vision in allocating an additional $600 million to the Permian region for the next two years. It’s a great beginning!
Reinvesting funding in the Permian Basin is the right thing to do to support our entire state – and our nation. What is happening in the Permian today is giving our country what I like to call greater “energy freedom” — the freedom to make the best decisions for our economy, our national security, the American people and our country’s best interests.
The Permian and its oil reserves are vast; they are transformative for our state and nation. They are a blessing that we have been given, and our job is to steward and develop them to the full extent of our ability. Thank you all for your work on behalf of our great state. God Bless you and God Bless Texas!