John Harpole is the president of Denver-based natural gas broker Mercator Energy. In this episode, Harpole explains how Europe “fell into the trap” set by Russia and Vladimir Putin, fertilizer shortages, why Europe’s energy crisis will last for years, and why the US should launch a “natural gas Lend-Lease” program for Europe.
Robert Bryce 0:04
Hi, everyone. Welcome to the power hungry Podcast. I'm Robert Bryce. On this podcast we talk about energy, power, innovation and politics. And this week we're talking about Ukraine and Russia and energy politics. And I'm pleased to welcome back my friend, John Harpole. He's the president of Mercator energy. John, welcome back to the power hungry podcast.
John Harpole 0:24
Robert, great to be here.
Robert Bryce 0:26
Now, you've been on the podcast. So you know, guests introduce themselves go.
John Harpole 0:32
42 years ago, I graduated from the University of Colorado and started in the oil and gas business. About a year and a half after that, I found myself working for an oil and gas company that was owned by General Electric. And when natural gas was deregulated in the late 80s, I was put in charge with two other folks in supplying natural gas to all the GE industrial plants in the US, essentially, when natural gas was deregulated. 30 years ago, I started my own gas brokerage company. And we manage about two and a half billion cubic feet of gas per day, the US produces about 92 BCF a day. So amongst the five of us, we've got a pretty good handle on a good volume, ranging from clients that turn natural gas into ammonia down on the Louisiana coast, to producers throughout the Rockies, the Midwest, producers in California and industrial plants located all throughout the Midwest. So we get a really great picture of what's going on the business. In the past, I worked on a liquefied natural natural gas import facility on the west coast. And I've also managed to get a gas storage, field certificated through the federal agency that that allows you to construct those types of facilities. So I really had a broad reaching exposure to this natural gas world. The one other piece, I actually taught on two different occasions, courses in China, to employees of Petro China, and members of the central party, I taught courses on how natural gas works in the US. So I've had some international exposure as well.
Robert Bryce 2:16
Well, that's what we want to talk about today is what's going on internationally. What were gas prices, I was looking at the prompt on the Dutch TTF this morning, and we're recording on March 4, it was at $52 on the front month for April delivery. And I think that Henry Hub price was about 1/10 of that what what's happening with gas prices in Europe, and where are they going?
John Harpole 2:41
Well, the the you know, this is an issue that I've been following for about 20 years, when I started working on that, what was then going to be an import project into the United States, right back in 20. In 2003, and four, we thought that by this time the US would be importing based on demand projections and production projections. At that time, we thought the US would be importing anywhere from 25 to 40% of its natural gas. And with Russia being one of the largest Russia owning largest reserves of natural gas, we anticipated that we'd be buying a lot of natural gas from Russia. And so it was really one of those that piqued my interest in the sense that how reliable a supplier is this particular country. And so we literally started looking into it as a potential supplier to the facility that we were working on the West Coast. And I did my research and discovered that between the fall of the Soviet empire between 1991, let's say in 2005, Russia had interrupted natural gas supplies to Europe, on 55 different occasions, they negotiated their contracts with all the European utilities to expire in the middle of the winter. Think about it this way, the fall of the Soviet Union, the pipelines that move natural gas from Russia proper through the Soviet Union to Europe, all flow through the very countries that left the Soviet Union, and many of those join NATO. And so it was clear to me back then, that this was going to be an interesting play to see how this plays out. And it was obvious back 20 years ago that Putin would use that natural gas supply is a weapon of influence on Europe. What blows me away is how they fell into that trap that was set. Really literally 20 years ago. You know, you and I've talked about it. Three big issues. The EU is relied too much on on renewable energy, too little on hydrocarbons and they've retired their nuclear plants and coal plants too early. And so it was a perfect storm for Putin in a sense. We know that there are only three ways you can get gas in the year one is For it to be homegrown. Two is for it to be imported by pipeline from Russia, and three is from waterborne transport through liquefied natural gas tankers. The reality right now is that if Russia cut off their natural gas supply entirely to Europe, there's not enough homegrown production in Europe, nor is there enough capacity to receive international gas brought in by boat. And so he has them again in this trap that, again, I believe he's been setting for 20 years one one other point that everybody talks about the Swift payments being cancelled or two banks do not fall into that category. And those are the banks that effectuate the transaction between the European utilities, and the Russian supply of natural gas. So to cut those off right now would be would be cutting off their own foot.
Robert Bryce 5:52
So let's I wanted to that was one of the first questions I had for you was this, this, the the Russia being banned from Swift, which is the the kind of the International umbrella for these wire transfers in payments via be of international banks. But I just want to make sure that I understand what you're saying that, in that these sanctions. In fact, there was a carve out that still allows Gazprom and other Russian companies to get paid for delivering oil and gas into the European market or any any other market in the world. Is that right?
John Harpole 6:26
That's correct. And it's stunning to me that that hasn't gotten more attention. But there are two banks, Russian banks that are involved in the majority of those transactions. And they have not been carved out from the swift response by the rest of the world. They don't want to give Russia any excuse not to deliver that natural gas. You know, we're talking here today on March 4. Last night, we saw nuclear plants acquired by Russia. Well, that's the largest nuclear plan in Europe, not just Ukraine, but in Europe, and it supplies 25% of the electricity.
Robert Bryce 7:03
And this zapper seizures that believe the pronunciation but it's fine point, it's very large plant again, nuclear gas, whatever, it's five and a half. 5.7 gigawatts is a very, very large power plant.
John Harpole 7:14
I heard that it was six to eight times larger than Chernobyl. But my over and under bet right now is how much longer? Will the three pipelines that are supplying natural gas, the flow through Ukraine, how much longer will those operate? And then how much longer is it before that nuclear plan is turned off?
Robert Bryce 7:35
You would then require which would then require yet more gas to keep the lights on in Ukraine. And and I want to talk about, and I want to talk about Poland and cold in just a minute. But highlight that for me, if you don't mind, go back to that Ukraine and the three pipelines what Tell me. So there are three pipelines that Gazprom uses to transit gas into Europe, and they go through then they go through Ukraine,
John Harpole 7:57
there are actually eight different delivery points the Russia utilizes to get gas into Europe, three of the pipelines, what I would call an interstate pipeline, or through the pipelines that flow gas out of those eight different delivery points, actually transit portions of Ukraine. And so I really concerned I think, if I'm the Russians, I go send the Chechens after those pipelines, law them up and blame it on the Ukrainians to make them. The reason why people in Western Europe and southern Europe are not getting natural gas. And I honestly I
Robert Bryce 8:32
say, so you're so you're thinking there's well, or that they'll sabotage them somehow to make Europe suffer even more than they would put and do that sooner. Or would he if he starts to lose or things get bogged down that he would, but would he do that? And also wouldn't that then hurt his own interests because of another guest on the podcast Benny Pizer said the Europeans are paying something on the order of 700 million euros a day to Russia that's helping Russia pay for the war?
John Harpole 9:02
Well, I think this will happen at a later stages of the capture of the total Ukraine. I think this will happen when they're pushing towards the west. You're from Texas, the distance between Kiev, and the further western portions of Ukraine is the distance between Dallas and El Paso. I mean, it's a good long march. And so I think this this type of action we'll have later on in the stage of of that acquisition, and quite honestly, I think it will happen later in terms of early spring to summer. But nevertheless, I think it will happen just to underscore look, what are you all going to do for natural gas supplies next winter. They're not going to be able to recover. There's not enough underground natural gas storage to recover. We could continue to max out deliveries and I say we the free market is maxing out deliveries to Europe because European utilities are out bidding anything kind of aging bids for waterborne transport of LNG LNG shipments. So I just think that in his mind, Robert, he's Putin has played this out for 20 years. And the fact that there's a 40 mile chain of tanks and armor stalled, I think that's part of the plan. That's not necessarily something that is unexpected on his part. When people I think people need to understand this isn't the first country that he's attacked. I think people need to look back and think about Aleppo and Gottstein. And his willingness to attack those cities and, and kill those many civilians is just an affirmation of what I think he's going to do here in Ukraine. And again, one of his top level weapons is energy. In a we cannot supplant what he supplies. With all the national concerted efforts we might have. By building LNG facilities in Europe, we just can't do that they won't happen for three and a half years.
Robert Bryce 11:02
They're just not enough. They're just not enough molecules. And so
John Harpole 11:05
Europe is going to be in a position of rationing. Natural gas. Now, you and I, a few weeks ago talked about the fertilizer, the impact on fertilizer and food. Again, one of our biggest clients turns natural gas into ammonia, and then into ammonia base fertilizer down downstream after that, there's not gonna be enough fertilizer for Europe for the, for the crops, this one this spring and summer. You're gonna see food shortages throughout, I understand that 15% of the wheat in the world, and 13% of the corn in the world moves through Ukraine, through the Baltic Sea. And so the reverberations of what's going on right now, as they stem from the power of natural gas or the lack of power, when you don't have it is I think it's going to impact the world for the next two to three years.
Robert Bryce 11:57
And there's no avoiding it.
John Harpole 11:58
No. And that's part of the whole plan. That's part of the 20 year March. I mean, think about a week, you and I both know how much money was spent on the disinformation campaign in Europe, by Putin, by Gazprom. It's been verified by the Center for European Studies.
Robert Bryce 12:14
And I don't know, how much was that? Do you have that $95
John Harpole 12:18
Robert Bryce 12:20
Now 95 million that the Russians
John Harpole 12:24
use this information campaign on hydraulic fracturing,
Robert Bryce 12:27
to funnel to NGOs in Europe so that Europe would with European countries would pass bans on hydraulic fracturing,
John Harpole 12:34
and they were successful. And when you think about it, they could have spent 10 times that number, and it would have been paid power for them. And in turn, they could have spent a billion dollars on that. And that's, think about it from this standpoint. 15 years ago, the production in the EU, the natural gas production, the EU was greater than the imports coming from Russia. But in the last 15 years, and I think in large parts of this $95 million dollars, and I got to say, other people would tell you, they've spent 10 times that number, but this is a number that they're comfortable reporting. Right. Artie news, Russian television news, had advertisements comparing frackers to pedophiles. I mean, that's how ridiculous this thing got. But seven large countries bought off on it. Some of the biggest countries in Europe. I mean, we've got France, Germany, the Netherlands, Bulgaria, Italy, Ireland, UK, UK, I said Italy, they did not UK and Spain, all put into all put in hydraulic fracturing bands, when they could be as self sufficient on natural gas, have they pursued hydraulic fracturing and the development of their shale plays? They can be as self sufficient and energy independent as United States is now.
Robert Bryce 13:48
And did you do a sum? I think when we just before we started recording you that you you'd add it up the population of all those countries, France, Germany, we're talking, I was just
John Harpole 13:57
actually in the process of doing it. But I mean, you they cherry picked. And and
Robert Bryce 14:02
the biggest the biggest economies
John Harpole 14:03
in Europe as economies in Europe. I mean, all you really had to do was attack Germany and France. From a technical standpoint, some of the Eastern European countries are the countries where there are shale formations, and they pick those off in terms of Bulgaria. So this was this was a very high level. You call it what you want chess game planned out for 20 years, where in addition to doing this, they were simultaneously making sure that they owned all the large natural gas fields in Russia. And if I can give you a couple of examples, so the COVID Cup field near IR could Siberia. I think it was in 2007 or 2008. The environmental rushes natural environment and spectra rosprirodnadzor. Went to air could Siberia. BP was managed Jing what we think is one of the largest natural gas fields in the world British Petroleum was and this environmental Inspectorate announced to BP, we're going to meet with you. We have the same issues on how you're spoiling the environment, we may pull your your license. Well, BP on this with some Russian oligarchs. And for the prior three years, Gazprom, the big pipeline production company, refused to give them access to their pipelines. So in essence, even if they produced they had nowhere to take the natural gas. So it was all straight. It was all stranded. Right. So the next step was to employ the same methods that they employed was shell at Salin, the offshore LNG facility, largest one in the world. They went into shell, they said, Hey, we don't like your track record we want to operate. Months later, it was Salin shell was no longer the operator, Gazprom as the operator 51%, it's reported that shell could have lost as much as one to $2,000,000,000.05 days ago, shell walked away from their ownership in that facility. So fast forward, a couple years later, they go to Iraq and Siberia, they meet with BPS country manager in a year cuts a man named inverse the Gungeon. In Versa, gotcha, must have upset them. Because after the Wednesday meeting with these people from the environmental inspectorate, he went out to a sauna in here could Siberia, I mean, you're talking about in the middle of nowhere, his wife went outside an hour later trying to find out where he was, and he was murdered. Shot once in the forehead twice in the chest. One of the other BP managers at the time said, Well, I guess that's our message to get out of Russia. Soon after that, they took over that license. And then, and then they committed that field, through a pipeline to China, and what was estimated to be a $400 billion deal over 30 years.
Robert Bryce 16:58
And that's No, and that's the power of Siberia pipeline. That's it, right? 3030 years or 30 years supply contract for Russian gas into China. That now they just they just announced or just began the power of Siberia to pipeline. Right. So this is correct. Well, so I thought about this a lot myself. And I thought, you know, I've been a little too busy to write it myself. But I'll put the question to you. So is the world now defined in terms of gas politics? Is the world defined by gas pipelines today?
John Harpole 17:31
Apparently not in the United States? If I can, I'll jump into another. Oh, sure. Go ahead. That buddy, it's, you know, it's killing the lead here, in a sense. So on February 11, the European Union Minister for energy comes to the US comes to Washington DC for the ninth annual EU US Energy Council. And she profusely thanks to us for the lifeline. That is LNG imports to Europe from the United States, again, all free markets not being dictated by the United States. But with our wealth of natural gas, we have a lot to export, we're exporting I think 12 billion cubic feet of gas per day. So back up a little bit, a good friend at a construction company told me that a number of the existing LNG plants export facilities in the US decided three months ago, even long before the Ukraine issue that they wanted to add another train to their facilities. And so there were
Robert Bryce 18:36
another adding another train another liquefaction trial to expand expand expand their ability to export LNG,
John Harpole 18:43
right? It was obvious I mean, the spread was one of those, oh my gosh, we have the gas, we have the spread the money, let's get this done.
Robert Bryce 18:50
And so just just so people who don't know the spread, so you're talking about the spread between the price of gas at say Henry Hub, which is the most common marker in the US, and then the selling price or the offer price for that same gas in Europe. So Sarabia spread that spread the differential between those two prices.
John Harpole 19:09
Yes, given that spread, the this morning, the five year price for natural gas at Henry Hub was trading at roughly $3.73. So the five year forward look for the price at Henry Hub is at 373. By good estimates, based on what we anticipate will happen to the Ukrainian gas pipelines. We fully expect that the price for natural gas in Europe for the next three to five years will be over $20. You can transport a lot of natural gas when you have a spread from three and a half dollars to $20. And so it was very, very obvious to all of these exporters. They said we've got to, you know, put in our fid or final investment decision on these facilities. So they've submitted permits all of those permits. are on hold right now at the Department of Energy for further inspection. There are Northeastern US senators who live in states that have pretty much blocked any pipeline access that part of the country. They're saying, Oh, no, no, no, we don't want to export natural gas. But the thing that has been most upset right now is that the government agency that oversees the policies and the permit approvals for natural gas pipelines for interstate natural gas pipelines pipelines across state to state is the Federal Energy Regulatory Commission. The current commission chairman Robert Glick was elevated to the chairmanship by by Mr. Biden by President Biden. Robert, five days after the EU's minister, came to Washington, DC thanked us for all the LNG. Five days after that, Glick announces two new directives for the policy of permitting or reviewing permits for natural gas pipelines. And two of those directives that are landmark kind of decisions. These are huge issues. No change has been made to this for policy since 1999. So it's been 23 years. But two of those issues that had to be considered going forward before you build it or permit a natural gas pipeline in the US are climate change issues. And you've got to discuss things with the climate change lobby, that neither of those is
Robert Bryce 21:27
Russia. So as Russia's teeing up now, this is a couple of weeks back now, you know, we're in we're in early March, but as Russia's teeing up their assault on the on Ukraine, the Biden administration is restraining the growth of gas exports, potentially to Europe via LNG.
John Harpole 21:46
Yes, they are. Which is counterintuitive. I mean, we have a we have a shale play in western Colorado. And it's not just the Biden administration's. It's California, Oregon, Washington, its state of Colorado under our Democratic leaders right now. But so they asked to the new rules and Colorado three years ago, our oil production has dropped off 30% In parts of the Front Range, you can't drill well within 2000 feet of any structure, which eliminated probably 70 to 80% of the drillable locations in Weld County, Colorado. In western Colorado. We have a shale basin that's world class, on par, I would say with COVID Caufield or Salin is the main cause shale, that's only second to the Marcellus Shale in the US. So think Marcellus Shale 2006, virtually no production 2017 1826 BCF a day of the Marcellus Shale, this Mancos Shale in western Colorado, Robert, with the proper incentives, which we have in terms of price, with the elimination of regulations and blocking mechanisms by different states, we could be exporting to world class markets, a world class resource in western Colorado, we could be exporting anywhere from my producer estimates in western Colorado anywhere from 12 to 15 BCF a day which would meet Europe's demand. So I just don't understand why the climate change argument is more important than supporting Europe these days. But that's the bottom line.
Robert Bryce 23:23
Well, let me interrupt you there. Because it seems like you know what, what is clear is that I mean, Germany has done a very quick about face right there. They're saying, Oh, wait, we're gonna We didn't mean to close those nuclear plants, we're gonna reopen the ones that they just closed in the end of December. And that there seems to be a sudden, you know, clarifying of the mind in Europe around energy policy. But you're saying that still the Biden administration is not even recognizing what's going on? I mean, they know, I know, you're I know, you're a conservative. No, you're a Republican, but it's, but this is about basic, the permits and regulations around critical energy production at a time when Ukraine and Europe have been left vulnerable because of Russia's energy power play. Right. Is that a fair a fair fair assessment?
John Harpole 24:14
I think that's absolutely fair. I mean, one of the German Minister said pragmatism must Trump every political commitment. I don't think that our our leaders in this country right now recognize that Russia is at our doorstep as much as their Germany's doorstep. I think that a lot of them are trying to explain away Putin's behavior right now has been some COVID fog, which is ridiculous. They don't look at the history of what he's been doing for 20 years to get to this point. I don't think that Ukraine is the last country that he's going to go after, I think, I think Robert in 1991, when the Soviet Union failed, there were 15 NATO, 14 or 16 NATO countries, I think every one of those former Soviet Union countries that joined NATO was a was a knife on the side or in the back of Vladimir Putin. At least that's how he saw it. And he's now and now it's payback time. It's payback time, and I've got you on the energy. I've got you by the energy.
Robert Bryce 25:19
short hairs. I think I wanted to say that technical, we're on a podcast, I think we can say short hairs. If we'd like to say short hairs, we can even say long hairs. Not that either either of us know much about long hairs. But nevertheless,
John Harpole 25:32
I don't think we understand or, or deeply understand, at least the the far left doesn't understand that this is been 20 years in the making. This is not some recent delusion. He look, he had a very careful and consolidate ownership, block other production, you know, persuade people that hydraulic fracturing across the world is a bad thing. And I don't think the money that he invested in the anti fracking campaign in Europe, stopped in Europe, I'm convinced that many of the NGOs that oppose hydraulic fracturing here in the US add funds from from Russia. But again, that gets might smack too much for some people have a conspiracy theory. But let me put it this way. If I was Putin, I would have done it. Because every MMBtu, or every 1000 cubic feet of gas, that doesn't wind up in Europe, is that much less competition for my gas?
Robert Bryce 26:29
Well, let's talk about storage for a minute. Because if memory serves, I mean, the US has remarkable geology, right? We it's a very big country, we have the excellent shale rock, but we also have other rock that from depleted oil and gas fields that is really good for gas storage. But if memory serves Europe's geology, their gas storage capabilities, but a small fraction of what we have in the US, is that right?
John Harpole 26:56
Well, one of the other benefits that we haven't, that's correct, yes. One of the other benefits, we have those the number of wells that have penetrated formations across the country, is that we have a probably a better idea of what's going on underground, in terms of underground formations than any other country in the world. Imagine China, I would guess the China has half of 1% of the total drill locations by per capita per geography that we do. And so they really just don't know what's going on underground. Now. There's plenty of gas storage in Europe in terms of available, depleted oil formations. But if you're moving to a world without methane, why would you ever build utility located storage or production area storage, you just wouldn't do it. It's funny here in the US, there was no real spread between winter and summer for many years. Because we had so much flowing gas from the shale. The shale revolution that the amount of natural gas storage that we developed here in the US was not what it was years before. I've been involved in a lot of natural gas storage projects. But you know, even if Europe had five times the number of gas storage fields that they do right now, it's still a question of can you get the gas there even offseason for the needs that you have in a winter heating season? So
Robert Bryce 28:26
so they just don't have the I think of that gas in storage as a battery, right? I mean, it is the ability to store that and call on it and when you need it and turn it into electrons. But let's jump back then to the the you know, when I talked to I don't know if you saw that former head of EMI six a guy named dear love in Britain just recently said that the British government needs to suspend the all of their frack anti fracking regulations and get drilling immediately. So you have a lot of experience in this business. Well, so here's the UK effectively at zero in terms of shale gas. If they started if Boris Johnson and the Parliament said, okay, you know, forget all that stuff. We were We were drunk, then we're sober now. We want to just start drilling immediately. How soon between the time they say go and getting rigs in place getting, you know, roughnecks and tool pushers and all the electricians and all the people that you know, man, the rig the frack spread all the rest of that get the pipelines How long will it take between the the time they say go and the time they start delivering methane into the into the British or European markets?
John Harpole 29:40
Now that I've got an answer for that, but I want to take you through a story. So I'm China in 2008. Teaching. Petro China employs 200 of them about 20 Central Party Committee members about natural gas and the country manager for EOG the old Iran oil and gas resources They had a concession in southwest China. We're at dinner at one of these state dinners. And I asked him, I said, How I understand you're going to be fracking. Well, now, up until that point in time, they had only fracked, about 60 wells in China. And I said to him, I said, How's that come? And he goes, Oh, John, you got to realize we have every hydraulic fracture truck in Asia right now on that location, which stunned me, because I measure now after that comment, and what I'm about to tell you, I measure energy independence, as how many crews you have out there that can go out and frack a well. So I came back to the US. A good friend of mine was number two. at Halliburton, Jim Brown, I said, Jimmy, how many? How many wells? Could we frack on any given day, in the US in North America, I called a friend of slumber j also. And they both came back with on any given day, unlike China, where every frack truck in Asia was on location. Back then, in 2008, nine and 10, we could frack as many as 400 to 500 wells on any given day. Now, given what's happened, transpired over the last 10 years, I doubt that the numbers there. But what you got to think about is that, you know, we were joking the other night, where where have all the truck drivers gone? And I said, well, all the C Class truck drivers got all the rental cars, and must have drove driven to Newfoundland. We can't get rental cars, or C Class drivers. Now. To answer that question, you've got to assume how quickly could we build up the knowledge base and the fleet of people with that knowledge to activate the kind of facilities and response time that we have here in the US, when even here in the US? It's tough? To find a C Class driver? To answer your question, I would guess it would take at least five years. But that's how long for you. If he you just went in and said, Okay, we're done. We want to be energy independent, it would take them at least five years to supplant what Putin supplies via pipeline.
Robert Bryce 32:11
Okay, so fair enough. But let me let me reiterate just that that, you know, so you're giving the big picture question about supplanting all Russian gas. What I'm, I'm just curious, given what you've said, and I take your point you, you we have a labor shortage in the United States. And I travel all across the country, I talk to people there's, you know, I was at a electricity conference in Denver, in fact, when I saw you last, and I was talking to a guy about some project, and he said, Yeah, well, we, you know, we we get projects all the time, but we don't have the people to work them. And I've heard the same from people in the drilling sector, in the upstream sector saying we just don't have enough people. So but if if, again, it just to first gas, so of Cuadrilla are one of the companies that has concessions in the UK, or did have concessions in shale gas in the UK. If they said go, how long before they get one of the rigs from the US and get a frack spread over there with all the rough next tool pushers that people that can handle can drill and complete that well and connect it to the pipeline network. How long? How many months would it take if they said go and we had a spare rig for enough people? How long would it take them before they could get first gas flowing?
John Harpole 33:21
You know, I'm not an expert in terms of the ability to find those people in that country. They're there for all I know, there could be you know, three rig crews sitting down in Bulgaria that could move right up. But I wouldn't be surprised if it happened if the first flow of gas happened within nine months.
Robert Bryce 33:42
So you're innocent saleability,
John Harpole 33:44
saleability, of an after that, how do you, you know, can I get we've got a client right now that's gonna resurrect a rig in western Colorado, and the sea, one of the CFOs has been traveling across three different states trying to decide what rate to get. And since we're on a podcast, he said, John, I found a rig, but the crew is for shit. That's the problem is that, you know, you want a crew that's been working together for years, is very, very, very efficient. And I'm afraid that it's gonna take some time to develop that for Europe.
Robert Bryce 34:23
So it's long enough, right? So it will, as I put it, it's about rigs, net rig rigs, rednecks and REITs right and I say right next to grade one with you know, with do all due respect, these are my people I'm from Oklahoma, I'm no, no, I know from rednecks, but you can have the the best AC top drive rig you can have all the best equipment, all the best material but you have to have the highly trained skilled workers in order to to make all that happen and if your opponents to make it happen, those guys are gonna have to come from Texas, Oklahoma, Louisiana, you know, the Marcellus these are going to be an American guys who, you know, would be the best ones to do that. but we don't have those extra those extra roundabouts do either me from what we
John Harpole 35:05
don't and I mean, I think maybe a great litmus test or a barometer for that is, and I hear people say that we're short 70,000 to 90,000 welders in the country. You know, we've lived through a time period where there weren't very many parents that wanted to send their kid to a vo tech school to learn how to weld, right, which I think is shameful. You know, an average really good welder now can make 150 120 $150,000 a year. Wow, I started in that position without having any college debt, for the most part. But I just I think we've lost our way in terms of understanding what it's how rewarding that kind of life can be. I'm gonna rel a welder can live anywhere he wants to now in the US, he can, he can start up his own crude develop his own crew. Fact they call him tribal crews on those for welders. But I think when you talk about the shortage, it's very, very serious in the C Class driver area, any kind of truck drivers, and welders. And so I think that extends
Robert Bryce 36:14
and they have to be able to pass a drug test. And that's one of the other key hurdles as well, right? So they got to pay it all and that they've got to be able to pass the drug test. In addition to having the right capability, the right attitude, the right desire to work, the rest of it,
John Harpole 36:29
there was a company, I'll just share a story with you about drug test. A guy goes in mandatory drug tests whenever they wanted to. He turns his sample in, the supervisor calls him and says, Now look, I'm just going to tell you this, you have to quit today and say you're not going to turn in your sample and come back in two weeks. Because if you turn in that sample the way that it is right now, I can't hire you for 90 days. That's how desperate that company was to make sure that that individual person wasn't taken off the cycle of being rehired for 90 days. That's about it. That's pretty about how desperate that employer is then to look around the regulations from their own company just to make sure that they've got somebody that for their need.
Robert Bryce 37:25
Well, the other thing that pops into my head was I was in Little Rock in October, I spoke to the Arkansas independent Royalty Owners Association, and I know Randy Zouk, who's the head of the Chamber of Commerce in Arkansas, he came to the meeting. And if memory serves, he told me JB Hunt, which is a big trucking company based in Arkansas. Were they short 3000 or four or 5000? Drivers? They said they would hire them right then but they were short 1000s of drivers, commercial drivers. So waste
John Harpole 37:53
management right now, waste management, will put your kids and your grandkids pay the full college scholarship. Have you signed on to drive for them?
Robert Bryce 38:04
Well, I don't I have kids, I don't really grandkids. But I'm starting to be and
John Harpole 38:10
I got this from an executive at Waste Management.
Robert Bryce 38:13
Wow. Think about that. That's remarkable. Well, Sue, the cast is for John. So now we've talked about where Russia is relative to Ukraine. Now we've talked about even if they bring in rigs and start deploying them now. And assuming again, that we have the labor, that they can get the water, the sand, you know, all of the other things that they need that generate the generation sets or all the other things that they're going to need to operate a modern, efficient drilling rig, AC top drive, whatever it is. What does this look like in two years, three years, four years in terms of gas prices in nat gas prices in Europe? And what does that and what effect does that have in the US in particular does? Does the US net gas price rise? As more global demand happens and more LNG gets exported? How do you How does that differential the spread that you talked about? How does that work out over the next couple of years?
John Harpole 39:07
You know, you and I have talked recently about internal rate of return and rate of return and the
Robert Bryce 39:12
the first company for companies that are drilling the drilling new rigs? Yeah, the efficiency
John Harpole 39:17
of the US gas producer cannot be You can't compare that to anyone else in the world. And so we're able to produce gas, or what I have called in the past a widget smarter, faster, cheaper, better, to steal something from one of your old book titles, probably more so than any other country in the world. I mean, we only account for Robert, I think it's the US accounts for 6% of the total reserves in the world for natural gas, but 23% of the current production. And so when you hear that magic word us gas reserves, my question is at what price did you calculate that reserve price? because I look at natural gas visually almost like well, I've got this much natural gas on the $3 shelf, this much natural gas on the $5 shelf, and I've got more gas in the world could ever use a $10 shelf. Well, here we are at 20 bucks in Europe for the next three years, right, you're gonna have a situation where,
Robert Bryce 40:22
and 20 bucks in three years and 5050 bucks today
John Harpole 40:25
immediately $60 On December 22. We have unlimited resources for what they need. We have an efficiency that's higher than any other country, we have a internal rate of return. I mean, it just chills me that the Biden administration doesn't understand that the EU is on a war footing here. And we should at very least be looking at the moral equivalent of the land lease act. Thank you, Mr. President Roosevelt, we're we're doing everything that we can to increase the reserves that we have available to export. Here's the other thing that we can do also, is that when you talk about
Robert Bryce 41:08
that, if I'm sorry to interrupt, but the so maybe to rephrase it a natural gas LendLease a natural gas, and that the US, the US should launch a natural gas LendLease for Europe.
John Harpole 41:22
And what we should do also is that because you're talking about on a liquefaction facility to receive that gas in Europe, you know, it's it's a fairy tale to think that some countries could actually afford to build their own LNG facility, finance, import facilities, and give them a special loan rate if they use us natural gas, finance at all downstream. I mean, this commitment by Germany in the last 10 days to two new LNG plants, Robert, that's probably about a $10 billion commitment. Germany can do that. Do you think Estonia can they can think Bulgaria can?
Robert Bryce 42:02
Well, it's interesting that you say that when you, John, when you bring up the idea of us financing for this because under the Obama administration, and I don't know whether it's under the Biden administration, as well, but some of the key bilateral lending entities in the US one of them was the Overseas Private Investment Corporation, which now I think has been renamed and I'm International Finance Corporation. Anyway, they changed names, but they prohibited OPEC at that time from financing coal plants in Vietnam and some of the other things that World Bank has done, and other the multilateral lenders have done is to prohibit any lending or political risk insurance or the other these parts of the financing packages for hydrocarbon projects anywhere in the world. So it seems like the the this as Benny Pizer talked about it this this sobering up around energy policy, still hasn't happened in the United States, the Europeans seem like they're waking up from a very bad hangover, and they're getting sober right? darn quick. But I don't sense that in the United States.
John Harpole 43:04
Imagine going today to the Oregon Department of Environmental Quality, and saying, you know, we can align ourselves with China and we can deliver natural gas to China, cheaper than it's coming out of kavika field, and here could Siberia, Russia to China, and we can bring China in, in a form of what I call LNG diplomacy. And we can come at reserves in western Colorado to the tune, where we could literally be delivering five BCF a day to China or to the LNG worldwide LNG market. Oregon Department of Environmental Quality for the greater good of the world, will you please allow us to put a pipeline under their river to get to that LNG export facility? And Robert, they would still today, and they're equivalent agencies in California and Oregon and Washington would all say no.
Robert Bryce 44:01
Because climate change trumps everything,
John Harpole 44:04
I've changed almost everything, but they seem to not understand that for every MMBtu of natural gas that China burns, instead of coal, you cut carbon emissions by 50%. And so there's not my backyard mentality and then to simultaneously be concerned about climate change and two degrees of temperature change. 50 years out is incongruous. And that's a nice word for it just doesn't, it doesn't add up to me. And then now layer in the security. This, the phrase I've coined is energy relativism, where you have people a cocktail party saying, Well, I'm for all of the above. Well, any German that was saying that three months ago, how much are they for Russian natural gas today? In their energy relativistic world? They're not how long before The same thinking that the Germans held a month ago is dispelled here in the US. And what is it going to take for us to realize that the culmination of this story with Putin is the standoff that's going to occur when he attacks a NATO country? And he is hands down threatening nuclear war. That's that's the final part of the chess game with Putin is that is the free world willing to go to conflated nuclear war with Russia to protect Lithuania, Estonia and Latvia? His bet right now, based on the response in Ukraine is they won't do it. And yet, this we're leaving this COVID, you know, two year Oh, I'm so sick and tired of that. What I'm trying to tell people is that we're facing this threat from Putin, I think for at least another 10 years. This is not a hey, we're gonna there's a sweet, clean diplomatic exit for what's happened in Ukraine. What's happened here is no different than what happened in Syria, Georgia, and in a frame Bella roofs. And this is just the slow march to reinvigorate and relive the this this Silveria idealism that he holds so dear.
Robert Bryce 46:26
So the only it will last this questions it was the only way out of this to drill baby drill is that the is that the solution here
John Harpole 46:34
in Europe, in Europe, in the United States, and to build liquefaction and regasification facilities in Europe?
Robert Bryce 46:45
It's true, you're saying yes, we there's no, there's no alternative but to drill? Absolutely. And what do you say to the people or, you know, there's been CNN ran a piece the other day, and I've seen these other ones? Oh, well, this just proves we don't need hydrocarbons. And we need to embrace renewables. What do you say to those people
John Harpole 46:59
are living in lala land. I mean, we both know that renewable energy is not dispatchable. Nor can you really store it on a utility scale. You know, my favorite, one of my favorite quotes is stolen from our friend, Alex Epstein, that you could have 500 years of Tesla battery factory production. And that would only hold one day of utility of the electricity volume of the US. So you this, this notion that we can flip a switch or move to renewable energy is been perpetrated by campaigners that have convinced policymakers and politicians. And then those campaigners don't have to live with the mess that they created later on. And nobody knows that mess better than what happened in ERCOT, you know, 13 months ago? Yeah, it just guys, you can't you can't be energy relativistic, you've got to look at the VAT, that the likelihood that that natural gas is going to come in from Russia. And oh, my God, how did you miss the historical premise that between, you know, 1991 and 2005, he interrupted him 55 times. How did you allow yourself to get hooked on that crack? Natural gas pipeline? You know, I just, but now, again, to your point, the Germans have woken up, what's it going to take for the for the Democratic Party in the US to weekend. And I don't qualify that. I mean, I qualify the Democratic Party in the US, and how much hardship has to play out in Europe, and how much hardship has to play out in low income energy households here in the US, where their natural gas costs are going to be priced out from what they can afford? All of those homes spend a disproportionate amount of their income on heating, and many homes are trying to choose between heating and eating. That's why we have the low income Energy Assistance Program nationwide, but I just I don't see a lot of low income households clamoring over climate change issues. And I see 1 million people leaving Ukraine right now. Because in essence, this all started with allowing Putin to use natural gas as a geopolitical weapon. It's like, Would you all please wake up to the reality of what's going on here?
Robert Bryce 49:29
too. It's pretty bleak assessment, John. I mean, you know, and
John Harpole 49:33
I agree, I wish I hope and pray I'm wrong. But, Robert, I've been watching this going up. Look what he did now. Look how he shut down. Seiling took it over. Look how we shut down. kavika Look how he played this game with you know, claiming that frackers are pedophiles. Look how successful he was with seven countries in the In the European Union signed on to a fracking ban, look at how he somehow persuaded or that cause persuaded people in the US to be afraid of hydraulic fracturing. You know, when honestly, the combination of fracking and horizontal drilling was the greatest breakthrough, since we split the atom. But it presented the biggest threat to his 20 Year 25 year campaign to reunite the Soviet Union.
Robert Bryce 50:30
So, in spite of all this, John, you know, I always in my episodes, my podcast, asking people, What makes them what gives them hope. And I've had to change it a little bit, because a recent guest, Simon Irish, CEO of Terrestrial Energy, he kind of laughed when I asked him that I said, why he said, Well, you know, I used to be on Wall Street. And on Wall Street, we said, there are two kinds of hope, Bob Hope and no hope. He said, I'm optimistic. He said, hope is something different. So amidst all of this, what what makes you optimistic or hopeful?
John Harpole 51:04
The Germans get it, the Germans finally get it,
Robert Bryce 51:08
that they're there that they're the key in all of this.
John Harpole 51:12
And you know, one of the things that I think forced them to get it, for the half a million people that went into the streets and protests that a week ago. It was really a half a million there. Analysts that really think that that's what, you know, push there, off the head of Germany into this, oh, my God, but that one quote, Robert pragmatism must Trump every political commitment that came from Germany, that quote, is their willingness to recognize that they cannot be too reliant on renewable energy. They've got to reengage hydrocarbons. And they shouldn't be retiring those nuclear plants. I mean, buddy, I'm a gas guy. But we should be building every nuclear plant, we can get our hands off, he states. That security, we should be engaging every shale basin in the US and promoting some effort to double the amount of natural gas that we export within five years. And I'll just tell you right now, there were times when LNG terminals came online down in in the Gulf Coast, and the natural gas price actually dropped into the Haynesville, you know, the Haynesville shale, those people will benefit because of their geographic proximity to so many of the export facilities. But I just know, there aren't a whole lot of natural gas pipelines up in the northeast, because they've been opposed to those. And there's not one liquefied natural gas export facility along the west coast. I'd love to see a national effort to change that. To recognize
Robert Bryce 52:52
two we need a national and a national strategy.
John Harpole 52:55
Absolutely. For both internal use, and, you know, let me put it this way, I would rather send 1000 cubic feet of natural gas to Europe than bullets and missiles. And so I call it LNG diplomacy. And we really need to look harder at this world of energy relativism. And apparently, Germany has woken up. It'll be really interesting to see what happens in this midterm election. Because I think there's a great awakening going on right now. So we'll see. I'm hopeful.
Robert Bryce 53:31
Bob, hope and no hope
are. Well, John, we've talked for about an hour. I don't want to keep you in my guest, my friend. proud to call him my friend John Harpole. He's the president of Mercator energy. You can find out more about him at Mercator energy.com. John, many thanks for being on the power hungry podcast again. The paycheck for this one is the same as the last one.
John Harpole 53:56
Thank you. Thank you, Robert. Be well take care.
Robert Bryce 53:59
Thanks for all you in podcast land. Tune in to the next for the next episode of power hungry podcast. We might do some I'm sure we're gonna do some more on Ukraine. But there's a lot to talk about. So until
John Harpole 54:10
finally pray for those people in Ukraine.
Robert Bryce 54:14
Amen to that. Thanks again, John. And thanks to all of you again. Until next time,
Transcribed by https://otter.ai