Letter #279: Greg Abel and Doug Suttles (2015)
Incoming CEO of Berkshire Hathaway and Then President & CEO of Encana | Power, Petroleum, and the Planet
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Over the weekend, 60 years after taking acquiring Berkshire Hathaway, Warren Buffett announced he was planning to step down as CEO and recommended Greg Abel succeed him. While I’ve covered Warren both in depth (via a ~5,000 page compilation) and in an original, never before studied way, there is far less on Greg (although I have previously featured him as an interviewer in this very newsletter).
Given the monumental announcement, I wanted to share one of the only public long-form appearances (outside of Berkshire’s recent annual meetings) involving Greg—a panel appearance with Doug Suttles for the Calgary Chamber of Commerce’s Energy Future series. At the time, Greg was Chairman, President, and CEO of Berkshire Hathaway Energy, and Doug was President and CEO of Encana Corp.
Greg is now the imminent incoming CEO of Berkshire Hathaway and the successor to Warren Buffett. Currently, he is the Chairman & CEO of Berkshire Hathaway Energy and the Vice Chairman of non-insurance operations of Berkshire Hathaway. He worked a number of jobs during childhood, such as distributing flyers, returning bottles, and working as a laborer for a forest product company, before starting his professional career at PwC in San Francisco. He then joined CalEnergy, which in 1999 acquired MidAmerican Energy and adopted its name. Later that year, Berkshire Hathaway acquired a controlling stake in MidAmerican Energy. Greg remained at the company through both acquisitions, and in 2008, became CEO of MidAmerican. In 2014, MidAmerican was renamed to Berkshire Hathaway Energy.
Doug Suttles was most recently the President and CEO of Ovintiv, a Denver-based petroleum company formed through a restructuring of its Canadian predecessor Encana. Doug started his career with Exxon in Oklahoma and Texas, before joining BP where he spent his first eight years in Alaska before being promoted to VP of Northern North Sea operations, then President of their Trinidadian oil business, then President of BP Sakhalin. He was then named President of BP Exploration (Alaska) Inc., and then COO CP Exploration and Production, ultimately retiring in 2011. Just two years after retiring, Doug was appointed President & CEO of Encana, which he led through its restructuring to Ovintiv.
Today’s letter is the transcript of a panel hosted by Calgary’s Chamber of Commerce for their Energy Future series that seeks to address the most essential long-term energy topics of the next 5, 10, and 20 years. On this panel, Greg and Doug discuss how they are navigate their companies through periods of uncertainty, thinking through strategic issues, the role of government in times of disruptive change, balancing stakeholder desires, issues around market access, who is responsible for market education and why the industry is so bad at it, what inning they are in, their view on long term gas prices, how they balance thinking about the long term and operating in the short term, doing good for their stakeholders, global competition, Tesla and Elon Musk, market penetration, engaging with counterparts, aligning on public policy issues, the coal industry, and more.
I hope you enjoy this panel as much as I did! It’s a fascinating look at the way Greg not only thinks about, but also actually conducts, business, which ultimately led to Warren Buffett choosing him as his successor.
[Transcript and any errors are mine.]
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Transcript
Host: Okay. Well, good to go. Great, good. Well, thank you, Scott for that introduction. Thank you to the Chamber of Commerce for for having us. It's delightful to be here. It's the first time I think I've actually done a major event during Stampede. I kind of like dressing up. And given that we're casual, I think you guys have shined your boots. I haven't. So, yeah, got the boots shined up, so we're good to go. But there's more symbolism here to Stampede and the subject than you might think. The Calgary Stampede started in 1912, and if I think back to 1912, and as we play dress up as if it was 1912, think about the energy transitions that were happening back then, it really is quite remarkable. If you go to the chuck wagon races, think about the horse and buggy. We were going from the horse and buggy to the car, the Model T came out in 1908. We were then putting up the electrical grid in 1912, and that allowed us to go from lanterns to electrified light bulbs, allowed us to go and install things like electric tramways, and trade in the ice box for refrigerators. So you see that there are even many consumer energy transitions that were happening. In drilling, for example, we were also going from cable tool drilling, which was bashing a spike in the ground to rotary drilling. And of course, there was the Kitty Hawk. 1912. The first flight of the airplane. And really, this was the glory days of petroleum and power, with a grid being put up and petroleum being used in things like cars and in airplanes. And of course, it was also a transition from coal to petroleum, when we went from the steam engine on the railroads and ships into diesel. The list goes on, actually. And the list goes on today. Look around you. We are going from Edison's old incandescent light bulb to LED lights, we are seeing new kinds of vehicles--electric vehicles, electric bicycles, natural gas vehicles--all sorts of alternate modes of transportation. We look around and we see new types of drilling. Revolutionary. The impact of which is probably as big as it was when we went from cable tool drilling to rotary drilling in the early 1900s. Yesterday, if you didn't see it, the first solar power plane went around the world and landed. And you may say, let's dismiss that in our business, because, after all, who is going to be flying around in one of those things? Well, if you were in 1912 looking at the Kitty Hawk, would you have said that only 55 years later, the 747 would be taking off? My point is, we can't be in denial about the changes that are happening around us. Now I've stood on this stage, and many stages, and many of you know me, and given lots of speeches in the past talking about [dominantly] commodity prices. But we are in a new era. And honestly, I've made a lot of calls on commodity prices that I'm proud of, and lots of calls that have humbled me. But there's one prognostication, prediction that I'm particularly proud of, and that was 10 years ago when I wrote my first book, A Thousand Barrels A Second. And in that I did a review of history and of major energy transitions, including some of the things that went on in 1912, and I said, 10 years ago: I don't know when it's going to be--it's in the next five, no more than 10 years, we are going to be entering another one of these major energy transitions. It will be a period of volatility, it will be a period of major upsets in terms of the way society gets its energy and the way it uses its energy. Well, I also said that, how do you know you're in one of those periods? I said you know you're in one of those periods when there's a lot of government policy coming at you. Well, guess what? I think we can agree we're here. We are in one of these rarefied periods where we are in an energy transition. I noted in my book that these periods only come around once every few generations: 50 to 100 years. This is a very, very unique period in the history of energy, chock full of anxiety, but also of opportunity. If you recognize it, this is when fortunes are made and courses are altered, and that's the way I have argued we should long look at it. Now I'm not telling you of this proud prognostication that I made to sell more books or anything like that, because actually, predictions are generally rather worthless. What is of value is thinking about what you're going to do knowing the outcomes of these predictions, the value is in executing. And frankly, I made that prediction not understanding the consequences if we do enter that period of what it means. I mean, it has humbled me. I live and breathe this stuff every day, and frankly, I'm confused. But I have two gentlemen here who are not. We are very fortunate. And I'm going to moderate, I think, what is a most interesting session, because, as you heard from Scott's biographical review of these two gentlemen, they have a long and illustrious career in leading big organizations through periods of change. And so actually, we're going to start off with this theme of disruptive change, a period of energy transition that only comes around once every 50 years. In economics, we call it energy transition. In business, we call it market share battle. Whatever you call it, it is leading through a period of tremendous uncertainty. Tremendous uncertainty. And so actually, maybe I'll--Greg, I'm going to start with you, and I want you to give the audience perhaps some wisdom and advice of how it is that you navigate your company and companies through periods of uncertainty.
Greg Abel: Yeah, well thank you for your comments, Peter, and, try not to go back to 1912 too much, but we are here today, and when I think about--there is a lot of disruption, we're obviously going through a lot of change. I think when I think about our organizations, our management teams, our employees, I can't help but start with optimism. We've got to have a vision, we have to believe that we're going somewhere, and we have to be ready to wake up every day and recognize, yeah, there's some challenges we have to knock down, but it's a great period, as you've highlighted, to be participating in. And with those challenges come great opportunities. And it's up to us as leaders to bring that optimism every day. I think out of that optimism comes, as I said, opportunities, challenges--we better be setting our goals pretty clearly and know our objectives around them and be sharing that with our teams so they know where we're going and why we're going there.
Host: You have to alter that course? Like you say you know you're going there, but I mean, things are changing.
Greg Abel: Yeah, it's going to evolve. So we like to think we develop great business plans that go out 10 years. And I think, being part of Berkshire, we've got a unique opportunity to think that long term, or even longer. But they're constantly evolving. But one thing we do always fall back on in the end, that doesn't change, is we have six core principles that we operate to--like they'd be similar to all the principles that each of your organizations operate to--but we do challenge ourselves every day how do we get a little bit better across each of those? And though our businesses have gotten better, irrespective of everything else that's going on around us, we know if we fall back to that as our last thing, we'll move forward, and then we'll manage these other things, and it'll continue to [hold].
Host: Good. Well, we'll come back to your 10 year outlook, especially for Alberta, in a minute. But I want to turn it over to Doug and ask the same question. I mean, you are seeing probably some of the biggest changes in the oil and gas industry that you've seen in your career, with the shale revolution, the new kinds of drilling techniques and so on. Maybe through your experiences around the world and different kinds of geological settings and so on. Tell us how you are leading in Canada through this period of change.
Doug Suttles: Well I think, first, agree with the points Greg made. But I think, secondly, the worst thing you can do in any business, and particularly in the oil and gas businesses, ignore these changes, and pretend they don't exist. And companies that do that tend to find themselves falling behind, and eventually, in the end, rarely succeeding. So first of all, you have to constantly be asking yourself, Is what you believe right, or is the world around you shifting? If you think about our industry today, the shale revolution is the topic. If you walk back to the 90s, it was all about the former Soviet Union, the collapse of the former Soviet Union, and access to new areas of the planet. And some companies decided not to participate in that and were left behind, and others move forward. So I think first, you always have to have a strategy, but you always have to be prepared the context you set it in may not be the same context. It may have moved and shifted. And when you're in a commodity business setting, that includes the commodity price environment. Secondly, I think as a leader, you have to then set direction. You have to. Because organizations are uncomfortable with change, so they need to know which way you're going--and I agree with Greg's point on optimism. You have to demonstrate belief in it. But be prepared to be wrong, and actually be prepared to be nimble and respond. And this is one of the big challenges our industry here in Alberta and right across the world is facing today. We had a massive shift in oil prices in a very short period of time, and we have to think what's not only the right strategic response, but also what's the right tactical response? We always tell people, It's great to get to the long term, but you get there through the short term. You have to get to that place. Because in the end of the day, when you run large organizations, the people do all the work. You have to always remind yourself, it's your organization and your team who actually do all the heavy lifting. And aligning them around common goals, motivating, incentivizing them, giving them feedback, is many of the things we do. And that usually involves massive amounts of, actually, communication. And in periods of change, you have to double that again.
Host: You go to double it again. I mean, I couldn't agree with you more. I mean, I think the number one rule, and I don't know if it's one of your six core principles, but is, Don't be in denial. And if you're in denial, I think you're in trouble. You said doubling down on the the efforts. You guys both have specific groups that just think about these strategic issues?
Greg Abel: Yeah, we have a unique structure in that it's not a traditional corporate structure. And to just lay it out a little bit, at Berkshire Hathaway Energy, for example, we have 27 folks that work in our corporation--in the in the corporate head offices. And if you go all the way up to Berkshire and Mr. Buffet, there's a whole other 23 folks. So we're really structured such that each of our individual businesses, [AltaLink] and those, they're responsible for their businesses, and they understand what's going on in the local communities they operate in, in the environments that they're operating in. And we really look to those leaders to develop our strategies. And we're happy to provide input, and we will--the limited folks that are in the corporate offices. But it really falls back upon each of those businesses to help shape their direction and where they want to take it. And obviously, for example, Scott and I would be having a lot of dialogs, a lot of dialogs with his team, potentially how we see the world shaping up. And some of the things that are, as Doug touched on, what's really concerning, what are the fears, what are the sort of ranges of outcomes, and then what are the really good things that we have to pursue? But in the end, that strategy and development will reside with our local teams.
Host: Right. So I'm gonna get to the petroleum side of the theme here first, but before we leave the change thing--if you're an investor, you're a corporate leader, such as yourself, or if you're government--I've highlighted in the past that in these periods of transition, everybody's got a role, everybody's got to think differently. What do you guys think or expect should be the role of government? We've got a lot of government people in the audience today. What is the role of government, do you feel, here, in this period of disruptive change? Maybe I'll turn it over to you, Doug.
Doug Suttles: Well, this is challenging, because I think that one of the challenges we have in energy, not just here in Alberta, not just here in Canada, but across the world, particularly the developed world, is people have taken energy for granted. We've been so good at what we do. They go to the light switch and they know the lights will come on. They go to the gas station and they know there will be gasoline coming out of the pump. There are other parts of the world, by the way, who just wish that existed. Millions--billions of people, actually, don't have access to electricity, and therefore their quality of life suffers. So one of the challenges policy makers have is, How do you create a sustainable system? And in my view, there are three elements to that. 1) it actually has to be reliable and accessible. 2) it actually has to be affordable. And 3) it has to meet the rest of society's expectations. And today, that's largely about climate. But it's actually moved over time from different issues. And how do you shape policies which balance those, particularly maybe with an audience who doesn't understand how all three of those interact. Because today, for instance, the conversation is completely dominated by climate, but affordability matters a great deal. If the cost of electricity doubles, it will affect people's lives in a dramatic way.
Host: I think you hit on a really good point, because it's a real balancing act we have, whether it's as corporate leaders or government. It's the question of, How does everybody want their energy? And everybody wants their energy, as you said: cheap, clean, safe, reliable. And there's actually a new one now: not in my backyard--out of my face. And so balancing all those things is really difficult. I think it's going to be the ongoing challenge in this period of transition and volatility. I mean, you look at those dimensions when you try and introduce new systems right?
Greg Abel: Right. Yeah. So when I think of the role of government, we do have a little bit of a different model in that, relative to Doug--so when you think about a commodity versus a heavily regulated and--not that you don't have regulations, but 95% of our assets are regulated. And we interact with the government and various agencies every day in a very extensive fashion. And first and foremost, we look to government to help set policy and shape policy. And what do they really want? What do they expect? And we want to have an active dialog with them as to what does that mean? So what are we trying to achieve, and do we understand the costs of achieving these things? But once we're all on board--so we want to have the consultations that are occurring, we want to have an active dialog with the government as to what we've seen has worked and what hasn't worked in other other environments that we've potentially are in or at least have observed. But then, once we've had that dialog, and the vision is set by--through the policy and strategy, I have a strong belief it's our responsibility then to start to implement it, and implement it to the best of our abilities, and really get out there and tackle it. And then I think the next role of government is to help those organizations that are effectively been empowered to go do it, to help implement it. And then not find another roadblock. They actually have to help take those roadblocks down and implement that broad strategy.
Host: In a collaborative way. So I'm going to segue into petroleum here, maybe from a different angle than I was expecting to, following on this cheap, clean, safe, reliable, not in my backyard. I was looking up the stats: every year, there's about 60 people that are electrocuted to death. Every day in North America, there are several children that get electrocuted and get taken to hospital by putting their fingers in the socket. Nobody says, Rip down the power lines. Yet, there's this big push on the oil, and the pipeline side says, Well, no more pipelines; I don't like pipelines, and so on. Just trying to reconcile--because nobody says, Tear down the electrical grid. But a lot of people say, Tear out the pipelines--there are no more pipelines. So how do--let's talk about sort of this social license right to build issues around market access. What are your thoughts on where we're headed with all that? Because we're at a real standstill, aren't we?
Doug Suttles: Well, I think it does tie back to energy knowledge and energy education. And I think for some of the responsibility for where we are today resides with the oil and gas industry. We love the fact we operated in the background. We actually did not seek out the limelight. We preferred doing what we do. There's also some cultural elements to our industry which have made it very successful. It's very entrepreneurial. It loves risk. It loves challenges. It loves finding ways to solve big problems. And then all of a sudden, one day, predominantly through the climate discussion, the world decided that maybe oil and gas is not good--or at least parts of the world did. It decided it wasn't good. And all of a sudden, this industry they didn't know anything about, got characterized by others as having nothing good about it. And people don't realize actually being able to buy affordable gasoline whenever they want it, are actually low cost natural gas, which is driving down their power cost, is actually an important part of their life. So we started from a very poor base, and we started from a place where others defined who we are and what we do. And we've worked hard to try to counter that, but we're working from our heels, and that's a real problem, because people don't realize is, in the XL debate, there are countless pipelines that cross the US-Canadian border, and many of them are quite old. The one we shouldn't probably be worried about is the new one in that process, but it's been characterized through a different debate. In the end, I think this is a long term problem and a short term problem. In the short term, it's back to Greg's point about the dialog between industry, academics, experts, and government, to make wise policy choices at the right pace. Because wrong policies will have bad implications. And the long term issue here is we've got to improve energy education. Where does it come from? How does it affect your life? And how does policy impact that?
Host: So I know it's not a cake walk to put up new transmission lines, and putting up even wind farms and solar panels have all sorts of, Not in my backyard, kind of issues. But correct me if I'm wrong, it would strike me that it is relatively easier to get those things approved than it is to get a pipeline. So if that's true, and you can correct me, what advice would you give to a guy like Doug in terms of putting up market access?
Greg Abel: Well, Doug, here's how you do it. No. I do think on the electricity side, we do benefit from the fact, as I've already touched on, and that's how we think of our businesses, they are very local, which inevitably helps. If you're thinking about a distribution line--and I'll come to transmission lines. But the reality is, when you're in the community, and that you have a direct impact on them, and you're talking to local communities that if we don't build this substation, or we don't upgrade this line, we can't fix your interruptions, or the one you're having every five days or whatever. There's a much stronger correlation to what they experience every day. So I think when you come to that type of discussion, it's a much easier one. I would say, as we get to the point of talking about transmission lines, it gets exponentially tougher, because then you are Not in my backyard, you're talking about [viewshed]. So it's interesting. Assuming you're not crossing a border, we would probably, in some ways, maybe find it--and we haven't built a pipeline for a while, but last time we built a pipeline, it was across three states. We did it in nine months. And it was relatively easy. But that's eight years ago. I can tell you, building across those states a transmission line would have been extremely difficult. And I think one of the things--but I think they're sort of equal challenges. But when it's just crossing across your state, or your province, and you're saying, Well, what's in it for us? And it's just they don't remember that, well it means lower cost gas or an affordable fuel. And yeah, it has to go all the way, maybe to Texas, and then come back, or into the Midwest for that to occur. They're just looking at this--either pipeline or transmission line coming across, and they see very little value. They may get some interim jobs, they may get some property tax base that they obviously love, but in the end, they're saying they really don't want it. They just don't see enough in it for them, I hate to say it. And that's sort of the--it's that education, and a big hurdle we have to get over is that that aspect of what's in it for us?
Host: It's a common theme, this education. And whose role is that?
Greg Abel: Well, I think it always starts with industry. We have to be fully aware of these challenges. We have to take landowner interest very seriously, and I even think we have to even go further to think about how do we, long term for example, compensate these people? Are we better to take their land through an easement or right away, give them one large lump sum payment, and then we become the enemy again? Or do we have to change how we compensate them over many, many years so they stay aligned with the asset? There's just--we have to keep thinking about, How do we tackle these challenges?
Host: So we have to educate--your view is that it's industry's job, which I would partially concur. So the elephant in the room question is, Doug, why are we so pathetic at this?
Doug Suttles: Well, I think that the tough thing is, How do you get the time to do it? And not our time, but how do you get their time? Because the problem is, if you oversimplify, then you can't explain the complexities when the issue arises. But I don't think, to be honest, I don't think the industry, the education system, or even government, has ever, actually, until very recently, put a lot of effort in this. So it's not insurmountable. I think partly we are where we are because we haven't done it. And I think doing it and committing to it, and I think one of the fair criticisms of the industry is we do it at the moment we need it, not before we need.
Host: Right. It's anticipating. It's interesting. You say we haven't really done it much. I would agree with that. Because even 10, 12 years ago, I would have said, the energy industry doesn't move that fast, etc, etc. And then you think about it, well, it doesn't move as fast as the high tech industry. Say, Well, shale gas really, really started taking off around '07, tight oils around 2010. Guess what? iPhone 1 came out in '07. I mean, you think about the massive changes that shale drilling has done and where we're going. And so, yeah, we haven't really had maybe time to think about new modes of trying to get the license, the social license, and so on. But I want to talk for a minute about that technological revolution which you're so acquainted with. Where is this taking us? The shale type drilling, whether it oil or gas, the tight oils in Texas, in North Dakota, here in Alberta, the shale gas in BC. What do you see 5, 10, years out with this stuff?
Doug Suttles: Well if you look at the technology that's unlocked the shale revolution, in the context of the industry and its history, it's still brand new. And you look at the data today, and you look at a well we drill, whether it's in the Montney here in Alberta, or somebody else drills in the Bakken in North Dakota, or we drill in the Eagle Ford in South Texas, and compare it to a well we drilled two or even three years ago, it's 50% or 100% better. So the technology is still maturing very, very rapidly and improving rapidly. And it would--I think it'd be false to assume it's close to mature. And both on the efficiency in which we do it, because. that unlocks more potential if we do it for less cost. The other thing to remember is--
Host: Just on that point, sorry, switching to baseball, like what inning are we in?
Doug Suttles: I'd guess the third. The third or the fourth. And the other thing to remember is, we're only recovering--it varies by the play, and the oil plays, kind of 8-15% of the hydrocarbons that are in the ground, with what we know today. That means there's about 90% left. And there's an old rule of thumb in the oil and gas industry, which is shale revolution reinforced, which is the best place to look for oil is in an oil field. There's a lot more left. Gas we're getting--we've got gas up to 30-40%, but that means 60 or 70% is still left behind. In the industry, the great news is, particularly here in North America and Canada and the United States, access to risk capital, a very mature service sector, allow fantastic experimentation. Why did it start here? And it's because of those elements. And actually making sure--and this government can play a role in--making sure you have an environment where risk capital is experimenting with new ideas constantly is actually going to benefit the consumer. Because the better I get at my job, the lower cost of the product to the consumer, oddly enough, is how it works.
Host: Well it will get better. What's interesting is, actually, I do know, in 1915, so it's three years after the Calgary Stampede started, the price of natural gas delivered to the door was 25 bucks in MCF--[today it's six bucks]. So the long term, real price of energy actually declines over time through technology and innovation. And so actually, while I'm talking price, my friend Greg over here, the power producer, wants to know what your view is of the long term gas price.
Doug Suttles: You know Peter, if you and I could really do that, we wouldn't have to work. I think the great thing is, particularly in North America, we have a almost unlimited supply of low cost gas, which is why this whole thing of finding new markets is so critical. And North America, whether it's Canada or the United States, can be exporters of gas almost forever without influencing the price. And the neat thing about that is that creates high quality jobs right here, generates government revenues which supply social services. So we need to get new markets, because if not, the price is going to be low, there's going to be less government revenues, there's going to be less jobs.
Host: So let's say we start getting a little bit of LNG within 5 to 10 years. But what are we talking here? $3? $4? What's the ceiling? $5?
Doug Suttles: Well, I think that--and I'll give you--because this is one of these places where what I tell you I have to tell everybody--what we've told the market and the world is, we've believed for a while now, for the last couple of years, that gas, for the rest of the decade, was probably going to trade in the 3.50 to 4.50 range, with short periods above and below that. And actually, in the last two years, we've seen short periods above and below. And the reason for that is there's so much low cost supply. And that's actually where the competition points are. I think to get enough demand to pull it out of that range is going to take all of the things people are talking about: LNG exports to Mexico, increase in Petrochems, and GDP growth, which pulls additional power, because a small amount of demand growth isn't going to move the price. So maybe into the next decade, we can see it pull up into the $5 range, but it's it's hard to see because of the massive amounts of low cost gas...
Host: That's five bucks. I mean, if you'd go to the next decade, if you adjust it for inflation, it's like, as I said, it doesn't really go... so, 3.50, 4 bucks--are you a builder of renewables or high efficiency gas-powered power plants, or what?
Greg Abel: Yeah. So I think again, it comes back to what's the resources available and what's the policy of the government? What have the people sort of requested to be done, and how can we best deliver that solution to these stakeholders? So obviously, at that type of price, gas units become very attractive, and you are going to see some incremental demand, but you also have to weigh in the consequences of carbon. And yes, they're half of a coal unit, but they still have substantial amount of carbon associated with them. So again, it's finding that proper balance. Are we completely willing to go to 100% gas? That's a decision Alberta would have to make along with the existing renewables. Personally, we would be more inclined to say we got to keep balancing it. So there's still going to be renewables. But at that type of price, the renewables become more complicated. They're not going to be built and compete in the market. So it does require incentives, or it requires some type of approach that allows them to be built to get that type of balance.
Host: So even--I mean, people say the solar panels are coming down. I've looked at the numbers--getting close to grid parity. Is that even industrial scale solar?
Greg Abel: Yeah, we would say--I'd make a couple points when you when you think about solar. It's come down drastically. We actually own 7% of the solar in the US, and we have the two largest solar plants in the world. So we understand it well. We've committed billions to it. And those prices have continued to come down every every year. And I think they are getting to the point where they're starting to stabilize. So technology has taken them to a certain point. But when you think about the panel, 40% of its the silicon panel, and 60% of it's the steel and the infrastructure around it. That drastically hasn't changed. So you're going to hit a point where it only goes so far, and it's being driven by the technology innovation. But it is down there, and down there, I would say, beyond what people call grid parity. That doesn't mean it can be used in the grid. Because grid parity means that the price to produce that power equals the retail rate that people buy it at. And that's one piece of three pieces on the electricity bill. And that maybe represents 40% of the electricity bill, ie that piece for generation. So I would argue they've still got a long ways to displace that one piece. And if you look at solar, the reality is it can't be done without incentives. At least--well, it can't be done, I'm not aware of, anywhere in the world, basically, with--
Host: Are you using today's numbers, or what you think solar might be 5 or 10 years out?
Greg Abel: Well, when you compare it to gas, which would be $50-60 Canadian, $45-50 US, whatever it is, you're starting to see solar prices get down, I would say, in that range. But that's utility scale solar, and that includes very significant federal incentives at this point in time.
Host: But presumably, both of you make your decisions, your big expenditure decisions, I imagine you with your infrastructure, 20-30 year time horizons. So 10 years from now, isn't it going to be a different world in terms of where this stuff's at?
Greg Abel: It is, but I don't think you can always wait for 10 years. You have to start on these trajectory paths now, and start having, sort of my earlier comments, you have to have a vision where we're going to take, be it a province, a state, where we're going to take our companies. And I don't think you just wait to try to pinpoint the lowest cost point. Renewables is a great example, or wind in one of our states, Iowa. We made a conscious decision for a lot of years not to build it. We had an abundance of resources there. But once it got to a certain point, we said, Okay, this is the price point to enter. We can still make this work for our customers long term, that it's not going to put a lot of price pressure, a lot of appreciation into the underlying rates. We knew those prices would continue to decline. If we waited five years, we're going to get to a better answer. But at some point you have to start that trajectory and believe in it. And--it's depending what you're measuring, but to me, it's going back and saying, Well, what's it mean to our stakeholders? And by that, I'm saying price. And then what's it mean on risk? Well, are we decarbonizing? And Iowa is a great example, where, over a relatively short period of time, 10 years, we built 4,100 megawatts of renewables, and 56% of their energy now comes from renewable energy. And they've only ever had one rate increase.
Host: That's Iowa. So just to give our audience a sense of 4,100, what's Alberta, total?
Greg Abel: 12,000.
Host: 12,000. So by a third. So that's Iowa. You're talking about what's it mean to different stakeholders. So let's talk about--
Greg Abel: The thing about Iowa--that's 4,200 of 8,000.
Host: So it's like 50%. Okay, so let's talk about Alberta. In building off your Iowa success example, you've come here to Alberta with plans on the electrical power side. Can you give our audience a sense of what you're thinking as coal-fired power plants potentially get moved out. You got Doug over here, who's got cheap gas for you. Sunny Alberta, windy Alberta in parts of the province. What are you thinking?
Greg Abel: Well, I think what we start as an organization is taking care of the assets we have today. So that's AltaLink and the transmission system. So first and foremost, they're going to take care of that, try to do it in the most efficient, effective way. And then it's back to what does the province really see as their vision? And then how can we help effectuate that in a way that's good for the many stakeholders--ultimately, the customers.
Host: So you're saying, actually, that it is up to the province to set the boundaries of where we should be going with our energy systems?
Greg Abel: In some ways. I think they need a lot of input from all stakeholders. But in the end, once that starts to be articulated, then the next step is then to start having people deliver and effectuate it.
Host: Right. Okay, so let's maybe move that a bit forward. Doug, your business is like, super competitive. We never used to compete in the with the United States, and now we're going head to head with Texas, North Dakota, and other jurisdictions in the light oil side. On the heavies, we're going head to head with the Mexicans and Venezuelans up the Gulf Coast. What do you think in terms of the quality of our rocks, our overall business environment here as it unfolds over the next five years, in terms of how we're situated competitively?
Doug Suttles: Yeah, it's a great question, because--the interesting part about our business is we don't get to set the price of our product. All we get to do is affect the cost that it takes to supply it, and the world on energy, as you know, it's one of the few products in the world where everyone knows what it costs every day. I always talk about if you walked out on the street here this afternoon and said, What did wheat close at yesterday? You'd probably get a interesting look. Or what did copper close at? But you ask them what WTI closed at, you'd probably get pretty close to the right number. So when I look at--particularly here in Alberta, in Canada, we have two things which are big factors we have to always deal with. One is brand new, and one has been here always. The one that's been here always is we're a long way from markets. Our markets, whether it's for oil or gas or NGL, are a long way away, and it costs money to get our product to market, and we don't get paid more for that. We still get the same price the other guy does. And we see this in natural gas in the biggest way. It costs 40 or 50 cents for [an MVT] to get that gas to the market, whereas in North America, in the United States, some places, that's almost zero. And we don't get a higher price for that, so we have to make up for that in our cost structure. The second part--the other piece of that piece that's been the same has been we have some issues around climate and geography, which just make things more expensive. We have, obviously people know about winter here and winterization. We also have seasonal activity, because the ground thaws out, which means we're not as productive. Some of our activities can only occur over about nine months for the year, but you pay for 12. Those things have been here a long time. The new thing, the thing that's changed in the last few years is, for decades, we had a big customer who wanted all the product we could send them. And first with natural gas, the first thing that happened is they said, we're not sure we need your product anymore. And what you've seen is natural gas production in Western Canada on decline for a number of years. And more recently, we've now seen it with oil, where they're saying, we really don't need your product, we got enough of our own. So that has changed the competitive dynamic. And the way we can push back on that, the way we can compete, is we have to lower our cost structure. We have to make up that transportation difference and that reliance difference. The only place it can come out of is the cost structure. And some of those costs are actually things we do and the way we do them, and the efficiency in the way we innovate. And some of those are the government payments we make, whether it's in leases or taxes or other form. But the key to your question is competition. We have to realize the energy market on gas is regional, on oil, it's global. And quite simply, the world really doesn't care where its product comes from. It just wants it delivered at the lowest cost.
Host: So let me key in on that word, because we hear it thrown around a lot: competition, competitiveness. And I'm glad I've got both of you on stage, because as I said, you're a Canadian working in the US, you're an American working here. I mean, I think we can almost safely say the Americans are the most competitive culture in the world. Is it our infrastructure, our technology, our rocks, and whatever that's the competitive issue, or is it Canadian issue is that we're not competitively-minded... Do we have an attitude problem here?
Greg Abel: No. I think we can be very competitive globally. There are challenges. Doug touched on them. A couple of important ones. I would say I would add a third one. Doug, you tell me if you don't feel these headwinds. The carbon issue's a big one. So you add the cost issues in that, but you have society, be it here in Alberta, but across the provinces, and then you cross the border, the equation of what carbon means now matters a lot. So when they're looking at--and Peter, you touched on it, there's a wide range depending on what a barrel of oil is being produced--and 1/3 of a fairly high carbon concentration, the other two are far lighter. But that's something that just has to be tackled as we're gonna explain it to the world as to why we should be be allowed to move these resources.
Host: I'm gonna come to the carbon issue, but honestly, I really want to probe this a little bit more, because I know that you're highly competitive, and you're highly competitive, and I know many people in the industry that are highly competitive, but our issues are largely based on social, cultural issues. And I'm not necessarily making a negative statement on that, I'm just trying to understand whether we as Canadians as a whole, because so much of our social issues depend upon public views, and we are in a democracy--are we competitive minded enough? In this new era where we're going to go head to head with the most competitive nation in the world?
Doug Suttles: Peter, our company only operates in two countries: Canada and the United States. And we're almost, by most dimensions, almost equally split in our presence in the two. And we talk about this a lot, and people talk about is there a cultural difference and other things--there are. But I can tell you, here in Canada, it's very entrepreneurial. It's got a very--particularly with capital deployment, it's been very entrepreneurial. I think, with embracing change in technology, it may be a bit slower, but some of that structural and commercial, I haven't found it technical. I found that technically, I can tell you what we've done and the innovation we've had in our Montney play in the last 18 months will rival anything done in the United States. But I will give you a different example--the Midstream deal we did at the end of last year with [Varison]--we found a huge amount of resistance. And what we were trying to do was say we got to find a way to better distribute the risk and put it in the right hands. And that's a trend that's happened in the Midstream, been going on in the United States for quite a few years. We got it done, but it was hard to do. It was hard to do, and we had to bring in new players to get it done. And I don't know what is behind that. I don't know if it's just comfortable with history and past, but I would say technical innovation, it happens pretty readily, but some of the commercial--and this is interesting, because we keep talking about infrastructure. We know how important pipes in these things are, and it's been that way forever in our industry, because where the products produce and where it's consumed are normally in our industry a long way apart. God didn't put the oil and gas in places where a lot of people live, generally. And this has always been an issue, and it's so crucial. And you need access to capital. You need access to risk capital. You need government support. Because as Greg said, if it's around an individual's house or a local community, you can actually sit down with those people and say, this will have a direct impact you and create value for you, and we'll talk about that. The problem is the pipe that goes across your province to get to the province next door, where the refinery sits, they're now saying, What's in it for me? And it is a tougher conversation, and you have to say, well, maybe [media] is bigger, because, by the way, my province doesn't charge you more for that car that you built next door and shipped across the provincial line. And that's where our political leaders really, I think, leadership really matters here, where it gets to be bigger than just my backyard, because if we actually go that tribal, that local, the whole thing will break down.
Host: Well we could talk about competition a lot more. I would say--what I tell people is, I do believe we're highly entrepreneurial and competitive here. This industry has been over 100 years here, and when we've had to live with the lowest oil prices and the lowest gas prices in the world for the last half dozen years, it really sharpens the pencils and makes us innovative. So I'm actually quite confident that we will be able to endure in this kind of environment and come out for it for the better.
Greg Abel: I would add one thing. Alberta is viewed as an energy leader, which tells you you're doing it right. I mean, as far as being competitive and driving and can you compete--it is viewed globally as an energy leader. That says something. People respect it. They know you're going to be competitive.
Host: Absolutely. States in the United States are also competitive from a government perspective. We know that Tesla, the electric car maker, got big incentives in Nevada for building their gigabattery factory there. So I don't want to talk about competition anymore, but I want to talk about that battery. Do you think that's a game changer in the household market? What do you think it's going to do here in Alberta, if anything?
Greg Abel: So long term, we clearly hope it is. In the end, one of the biggest obstacles in the energy sector, everybody knows this, is we can't store the energy. And that's 101. So do we fundamentally hope that gigabattery has a substantial change in how we use our energy infrastructure? Personally, yes, and as a company, we hope so. Would I say it's there now, at this point in time, relative to their technology that they are developing within that gigawatt factory? They would be the first to tell you, No. So just recently, had a conversation with Elon, and we're having coffee, and I said, So if you think about how that battery, how much will it penetrate in the coming years, the households, and he literally said 1%. And said, Well, and it might get to 3%. But he's in that 1-3%. That's not a game changer. And it's because of the cost structure and the cost structure of the inverters and everything else that comes with it. But when it comes to utility scale, so i.e. taking those and trying to scale them up in a substantial way, is there an opportunity to now implement that into our systems, into our transmission and distribution systems? Absolutely. Is it completely cost effective? Are we picking the exact point to get that we should be doing it? No. It's going to get cheaper. But you do start introducing it into the system, because our goal, as across all of our business units, is ultimately to take our systems we have today and make them valuable for our customers and our stakeholders, irrespective of the form of energy that's being generated. It could be gas, it can be renewables, it can be traditional coal, but what we need is a system--it can be rooftop solar supported by batteries. In the end, we want to have a system that is valued by our stakeholders many years to come. And I think they would argue, and we would support it, that probably utility scale, it's getting closer, but they still need a substantial breakthrough in battery technology to get it to the point it's going to be valued at every house. And that doesn't mean that that battery is not going to produce a cheaper battery every year. And it's in our backyard. We're helping them build it. We supply Nevada, they're a big customer of ours, so we have an ongoing dialog with them. It will get more efficient, but the breakthrough on the battery side has not occurred yet. Let me just say that.
Host: But it could.
Greg Abel: It has to, at some point. We just got to keep--
Host: Can I just say that--you're saying 1-3% market share penetration. The theory of market adoption is if you hit 2.5-3%, you're on your way. It just goes ballistic, the market adoption. So watch that space, because I think that it's something that we should not be dismissing. It's going to be very interesting, and really could change the balance of the energy systems. Let's move on to the--as we go to the last 10 minutes, 5-10 minutes of our program here to planet, planet meaning environment, social, cultural, type issues. So why don't we talk first about--actually, I want to talk first about the first about the First Nations. We've got Chief Weaselhead here in the audience, and others. Let's talk about that dynamic here in Canada. You guys have both worked on both sides of the border. So why don't you start us off, Greg, in terms of your relationships, and some advice--again, I want to focus on advice to give to leaders in the audience as to how to do it right.
Greg Abel: And right when you're talking First Nations?
Host: Yeah, in working with them. Engaging.
Greg Abel: Engaging. So yeah. And I would probably go beyond First Nations. But it's part of it. And it goes back to one of my earlier comments. We usually start, when we see a challenge is, how do we engage them, and what's the right solution? How are we going to be partners for the long term? And it's understanding what their issues are, how do they define successful outcome? And then can we help deliver that? And I know that's not easy, but if we don't start there and then actively work with them to find that solution, you're probably not going to get over that to that road block. So we have a situation in Oregon, California, where we're removing four dams due to an agreement we have with three tribes. And when we acquired Pacific Corp, they could never get that done. It was just a battle that they were never going to remove them. And our local tribes very much wanted them removed, get back to the fishing that existed in the 1930s and 40s. And we just--once we got down to some simple principles that, listen, we understand your goal was to have these removed, and we said, we've got a certain amount of value built into these for our customers, and as long as we can get that value extracted over--whatever, however we can shorten up the period. Maybe use the asset differently. Once we've extracted the value on our customers, we're completely fine. Let's get to your solution. To me, that's a win-win. We're just protecting our customers and delivering a great outcome for our tribe. So it's that engagement, understanding what their challenges are, what their issues are, and then how do we get there together? Because there are solutions out there. It's not easy, but--
Host: Well, it's not, I think, something that, not say it's new, but the issues are acute, maybe is a way of putting it, this whole notion of collaboration, which just seems so common sensical, doesn't it? I mean, whether it is First Nations or a local community where you're putting some lines through, or a pipeline or whatever. I mean, this is the challenge, is collaboration, isn't it?
Greg Abel: It is. And I think one thing we maybe haven't done well, at least on our side, when we've operated as entities in these folks' backyards, we start by thinking we know it all, and we usually start conversations that way, versus really saying, What are the principles we're both trying to achieve? And if we can start the conversation with fundamentally, what are you trying to get out of this--whatever party it is, it's sort of like you said, it's simple negotiations, but as long as you understand what they're trying to get out of it, and what you're either trying to protect or what you're trying to get out of it, you get a lot better chance. But it doesn't start there. Usually we're both talking over each other within the first minute of a conversation, and it breaks down pretty quickly.
Host: Yeah, yeah. I'm from the financial industry. We never say we know it all.
Greg Abel: Haha.
Host: Doug, you want to...?
Doug Suttles: I think what Greg said is quite wise. And I'd just add a couple of points. I think that, in my history, whether it's with any group where there's perceived conflict, one of the worst things you can do is assume motivation and what's behind it. And it really does start, I think, as Greg's saying is, first you've got to build relationships, and you've got to start a dialog, and the dialog says, What are you concerned about? What are you interested? What do you want to achieve? As opposed to telling them what they think they should want to achieve, what they think their goals should be, what they think the solutions are. Because as soon as you can get down to listening in a real discussion, you have a pretty good chance. It's not a guarantee, but you have a pretty good chance you'll find that place that exists. And I think to some degree, some of these issues have unfortunately been politicized, particularly through the media, in particular, which is difficult, because I think we've all learned that having challenging negotiations are difficult to do publicly. They really are. And that's a challenge, though, in a public policy area, but it's very difficult to do that. And I think you need to find--how do you find a way, at the right time, to take things of public interest to the public, but at the same time knowing that, at least in the early stages, we're trying to understand each other, build a place to negotiate from, and try to find something that's acceptable to both parties. It's, particularly on some of these issues, a very difficult thing to do.
Host: Yeah, it is difficult. I mean, everything is public with Twitter and Facebook and everything else. I mean, it just seems like it's difficult to have a private conversation.
Doug Suttles: Well, and some of these are public policy issues, so the public clearly has a responsibility and a role, but the public is clearly comfortable that in key government relationships, they understand the concept that governments will have to do some things in private before they go public, and why wouldn't that be the case in some of these areas?
Host: Right. Okay, well, let's wrap it up with the carbon issue. We are progressively and increasingly in a carbon constrained world. We're trying to keep things under 450 ppm, in technical jargon. Are we going to be able to do it? That's the concentration of carbon in the atmosphere.
Greg Abel: Will we be able to achieve it? Yes. And I think it's something we do have to achieve long term. So we start with the process.
Host: What's long term?
Greg Abel: Well, I think there's nothing wrong with--so for example, everybody gets to define it differently. I've highlighted a couple states that want it done basically by 2020. We have a federal government in our current US administration--they want 30% reductions relative to 2005 by 2030. And I shared this in a dialog earlier this morning, our industry has come out and said, in recent meetings with the White House, that we can get within 1% of that. So they're saying it's achievable. That puts us on a very significant trajectory to achieve those type of levels. But I do think, Do you have to solve even the carbon issue by 2030? No. We've got time to solve it. But you want to get everything on the proper trajectory, and there's many ways to solve it. It doesn't mean we don't use carbon resources, but in the end, we have to have solutions over the long term.
Host: Just a quick question on coal. I mean, everybody's sort of writing off coal, but coal has an interesting way of resurrecting itself in history. Coal gasification. Is that something that will be coming back?
Greg Abel: I think any of those technologies can definitely come back. I don't think they're economical right now, but I think that's the beauty of coal, gas, any of these things. There's going to be solutions, just like we talk about renewables get more efficient, more effective. There are going to be answers that come forward on these different fuel sources that will help with this problem, and we just have to be very diligent in pursuing it and constantly challenging ourselves. Why aren't we pushing ourselves further to look for answers?
Host: So Doug, speak from the perspective of a guy who spent his entire career in the fossil fuel business, oil and gas, particularly, now faced with this carbon challenge, the 450 challenge, give us a sense of how the oil and gas industry is acknowledging this and working to try and reduce the--
Doug Suttles: Well, I think the thing that we can do is, today, for transportation fuels, petroleum is the source of that, and the reason for that is it's such a great energy package. It's so dense, it's easy to move around. And today there's not a great solution. And as governments and entrepreneurial companies try to find solutions for that... I think what we need to do is continue to work to reduce our footprint in producing it. I don't think it's our job to stop producing it. The world needs what we do, what we produce. It changes the quality of life. But the impact we have in doing it. And I find it deeply ironic that the reason the United States is back to its its CO2 levels from 1990 is from natural gas, a hydrocarbon. And as we think about these policy issues, I think one of the roles government does have is set these long term objectives. I think sometimes where they miss the mark is when they decide how. If you let enterprise figure out how--I mean, who would have thought 30 years ago the tail pipe emissions of a modern sub-compact car are actually, in total, less than an EV vehicle? And what is that? That's the automotive industry finding how to actually have less impact in burning gasoline to get transportation effectively. So I think as governments set these targets, I think they need to actually let people like Greg and me and Elon Musk and all these people go out and try to figure out the most effective way to get there, because, as you know, in your your business, trying to pick winners is difficult. Very difficult.
Greg Abel: If I could add to Doug's comment, I think that's absolutely critical. That they shouldn't define the how. And if you look at the Federal EPA rules right now, they've got four building blocks. And within that, they're providing a lot of flexibility in how you use the building blocks and what you do within them, but a couple of them are still too prescriptive. And even though we can get within 1% of it, what we were really in talking to the White House about was the fact that make these less prescriptive. Let the people in the industry, the people that know their customers, figure out these answers, and give us a little more flexibility around this, and we'll get to great answers. But we need time, and we need flexibility. And we will make it more affordable. I know that.
Host: Well, I'm encouraged. Cheap, clean, safe, reliable--all packaged together. And it really sounds like an exciting future. You guys are a part of it. Thank you very much. You've made me wiser today, and I hope the two gentlemen sitting beside me have made you wiser as well. Thank you to the Chamber of Commerce. Thank you all for coming. Enjoy the Stampede, and hope to see you next year.
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