The Truth with Lisa Boothe: Oil Price Shock: Former Energy Secretary Dan Brouillette on Iran War, Global Oil Markets, and America’s Energy Future
3/10/202622 mincomplete
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0:33T's and C's apply. Welcome to The Truth with Lisa Booth, where we get to
0:41the heart of the issues that matter to you.
0:43Today, we're talking about oil.
0:45Oil prices have been swinging wildly, and the Strait of Hormuz effectively closed amid the
0:50war with Iran, and the global energy markets are on the edge as a result.
0:54So we've got former U .S.
0:55Energy Secretary Dan Barrett. He worked for President Trump during his first term.
0:59And we're going to ask him to break it all down.
1:01You know, why traders are panicking, whether this $20 billion insurance backstop that President Trump
1:06is proposing will help. Also, Biden drained the Strategic Petroleum Reserve.
1:12So what sort of position does that put us in?
1:14Are we in a dangerous position?
1:15So we're going to talk about all of that and more oil, energy, the price
1:21of energy, and what you should know moving forward.
1:24So straight talk from the man who ran the energy department during a really interesting
1:28time, President Trump's first term.
1:30So stay tuned. This podcast is brought to you by Wise, the app for international
1:36people using money around the globe.
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2:02T's and C's apply. Well, great to have you on the show.
2:06We've got the former Energy Secretary, Dan Brouillette.
2:09Thank you for making the time, sir.
2:11Well, thank you, Lisa. Great to be with you.
2:13There's a lot going on in the world right now when it comes to energy
2:17and oil. We have seen a lot of volatility in the market as well as
2:23a result of what's the war in Iran.
2:25What are traders most worried about right now, sir?
2:28What's driving sort of these huge swings in oil prices that we've seen?
2:32Well, you know, it's trying to price risk.
2:34That's what they're struggling with right at the moment.
2:37It's how do you price this risk?
2:38And it involves a number of different things, obviously.
2:42Price, but also things like duration.
2:44How long is this conflict going to last?
2:46You know, when will these shipments be able to make it through the trade?
2:49When are we going to get the oil that we contracted for two months ago,
2:54three months ago, four months ago?
2:55It's just pricing that type of risk.
2:57And what happens in the marketplace is that when producers declare things like force majeure,
3:03like we saw in the LNG space in Qatar, you know, what that basically means
3:07is we understand we've got a contract with you, but we're not going to provide
3:10the product. So what happens is there's a mad scramble for whatever is available on
3:16the marketplace. And that means barrels on other ships.
3:19In the case of LNG, it means cargos on other ships.
3:22There's just this mad scramble for what is known as this replacement barrel or the
3:27replacement cargo. And that's what you see in the pricing today.
3:30So that's why we went from roughly mid -70s or so to literally $120 in
3:36about, what, 24 hours, 36 hours, something like that.
3:39And then all the way back down to the low 80s.
3:41But that's what that's all about.
3:43And it's really about, you know, it's really the psychology of the marketplace rather than
3:48the physical availability of oil or of production of oil, I should say.
3:54Kind of reminds me after Liberation Day with the sort of volatility we saw.
3:58You know, how challenging. I mean, obviously, if you're the Trump administration, you can't exactly
4:03map out with, you know, 100 % certainty how long this war is going to
4:08last. We've seen Secretary Hegseth sort of give a more undefined timeline.
4:12We've seen President Trump recently say it could be a month and kind of tighten
4:16the timeline. How much of that from the president do you think is in reaction
4:20to sort of the volatility we're seeing with oil?
4:24Oh, I think it's a factor.
4:26I mean, I don't think that it's completely dependent upon that.
4:29I mean, he's looking at this as a military exercise, not an economic exercise per
4:32se. But I do think it has an impact on his decision, and it has
4:36to. He has to be mindful of all of the trickle -down effects, if you
4:39will, or, you know, the sort of the after effect of whatever activity that you're
4:44undertaking with regard to the military.
4:45So I think it's a factor.
4:47But, again, I don't think it's the primary decision, I think, or the primary factor.
4:51The president, as I understand it, is taking a very long -term view of this.
4:56You know, the Strait of Hormuz, everyone has known, if you've been in the energy
4:59business for a while, you've known that that's a choke point.
5:01You know that it's vulnerable, and it has the ability to impact world markets.
5:06But, you know, the president has said that he wants to correct the situation.
5:11We've got a regime in Iran that's owned that piece of geography for 47 years,
5:16and they've used it as a weapon against the rest of the world.
5:20And the president says enough's enough.
5:22So he's taking a long -term view, and he's going to rectify the situation.
5:25Well, we've seen ships rightfully concerned with trying to pass through the street.
5:30Makes a lot of sense.
5:31Sure. Right now, the administration is trying to stabilize shipping with a $20 billion insurance
5:37backstop for tankers. From your experience running the Energy Department, well, is that enough to
5:43convince companies to send ships back into the region and to get the job done?
5:48Yeah, I think it is, because as I understand what they're offering, it's called reinsurance.
5:52So it's not what's called first loss coverage.
5:56Those are companies that, for instance, Lloyd's of London, you know, others who provide that
6:02first coverage in the marketplace.
6:05What I think the president is offering through the DFC here is backstop coverage, reinsurance
6:11for those first loss insurers.
6:14It allows them basically to spread their risk over a bigger pool of capital, so
6:18that they're not assuming all of this loss by themselves.
6:22And, you know, as the way the financial markets work, that $20 billion can be
6:27stretched out to provide roughly $100 billion or $200 billion worth of coverage in the
6:32marketplace. So it is an ample amount of money, in my view.
6:36Now, that's coming with the understanding that I'm not in this business and I don't
6:39see what the daily risks are.
6:41But my instinct tells me, after spending 12 years with USAA down in San Antonio
6:46in the insurance business, that's going to go a long way to relieving a lot
6:50of the psychological fear, if you will, and risk of putting your ships into that
6:55strait. And then you also have the security factor, too, of fear of wanting to
6:59take on that job as well, given the volatility.
7:02Yeah, that's true. That's true, Lisa.
7:05I mean, you know, a lot of the conversation has been focused on the commercial
7:07aspects of this. But, look, if you're a ship captain, or more importantly, not more
7:12importantly, but, you know, importantly, if you're a CEO of one of these companies, you
7:16know, you're thinking about your employees and you don't want to put them in harm's
7:18way. So sometimes it doesn't matter what the insurance coverage might be.
7:22It's just you won't put your people in harm's way, and rightfully so.
7:25That's why I think what the president is proposing, you know, this insurance regime or
7:31this insurance plan, combined with a more visible presence of the U .S.
7:36Navy in the strait, those two things combined, I think, are going to go a
7:41long way to alleviating that risk that people see today.
7:46You know, we keep hearing about the Strategic Petroleum Reserve and, you know, or obviously,
7:51you know, as everyone knows, our emergency oil savings account.
7:54It's around 415 barrels right now, I believe.
7:58How uncomfortably low is that?
8:00I know, you know, Biden is to blame for draining it pretty significantly.
8:05What sort of position does that put us in?
8:08Not a good one. To be blunt, not a good one.
8:11Look, I think, you know, it holds roughly 700, 715 million barrels.
8:15We want to keep that as close to that number as possible because you never
8:19know what's going to happen and what it's there for are actual emergencies.
8:23It's when you cannot physically get a barrel of oil.
8:26You know, there's a complete stoppage in the marketplace.
8:28That's what it's there for, and it takes a lot of oil to replace that
8:31if you ever reach that point, and we did back in 1973, which is why
8:35the reserve was created in 1974.
8:38Those were true emergencies. We're not there yet with this, you know, this conflict in
8:43the Middle East. We're nowhere near it because we're supplied with, you know, with oil
8:49today in the marketplace. I think our total production number worldwide is somewhere around 106
8:53million barrels per day. Our demand is somewhere around 104, 105.
8:58So we clearly have enough supply in the marketplace.
9:00What we're dealing with is a logistics problem, just getting it through the strait.
9:05It's an infrastructure problem, getting the product to market.
9:07The president's dealing with that from a military standpoint, which is the right approach.
9:12But it doesn't mean that we have to fleet the Strategic Petroleum Reserve at this
9:17point. I would suggest that we don't want to do that, given its low, relatively
9:23low status at the moment.
9:24I think it's roughly 58 percent full, give or take, based on what we know
9:29today. You know, walk us through what you did as energy secretary during President Trump's
9:33first term and what he's done so far in the second term and with just
9:37energy independence at large and kind of how that has positioned us to where we
9:41currently are. Yeah, no, happy to, you know, to share some of the things we
9:46did in the early part of the first term.
9:48The president, when Rick Perry was the secretary in the first half of the first
9:51term, I was the secretary in the second half.
9:54But in the first half, I was the deputy secretary.
9:56So I worked closely with Rick and the team to, you know, to work on
9:59the president's agenda. He called us in very, very early.
10:02He said, look, here's the deal.
10:03We have too much regulation in this industry.
10:06People are hamstrung. They can't produce the way they want to produce.
10:09Importantly, he said, you know, they can't export and they can't move the product around
10:13as easily as they would like to.
10:15You guys need to get busy looking at these regulations and see what we can
10:19do. And then he reminded us, and you may remember this, he said, if you're
10:22going to propose new regulation, and for everyone you propose, you've got to eliminate two.
10:27That was the very direct order he gave us.
10:29So that's exactly what we did.
10:31And we went to work working on things like liquefied natural gas, which was a
10:35growing industry here in the United States and still is.
10:38But we did very simple things.
10:40I'll just give you a quick example.
10:41If you wanted to build a small LNG facility for export here in the U
10:45.S., you first had to come to the Department of Energy and get what's known
10:49as a... public interest permit.
10:51And what it basically said was, yeah, you know, it would be in the public
10:55interest if you, Mr. Capitalist, put your money at risk to build this facility, as
11:00if the Department of Energy knows anything about investment or knows anything about what might
11:05be in the public interest.
11:06And then if you got that, you went over to the Federal Energy Regulatory Commission
11:10to get the actual permit to build the facility.
11:12But then it was one more step.
11:14If you wanted to export that LNG, you had to come back to the Department
11:17of Energy and ask for permission to export the product.
11:21So three big steps that are enormously expensive.
11:24It is not uncommon for this to cost tens of millions of dollars in legal
11:28fees and everything else to get these permits.
11:31So we eliminate the first step.
11:33You know, we just, as I said, you know, Rick and I got together and
11:35we said, wait a minute, you know anything about, you know, how do you do
11:38this in terms of investment?
11:40It's not our money that we're putting at risk.
11:42It's they're putting their own money at risk in the free market.
11:45If they lose their money, they lose their money.
11:46Why are we just holding them up to getting these permits?
11:50So we eliminated those kinds of things.
11:52It's a very common sense approach to how you approach regulation.
11:56And it really did unleash a lot of investment.
11:59We had a number of final investment decisions that went forward during our first term.
12:04We did a number of other things, but I guess to sum it all up,
12:07the president gave us a very direct order.
12:10Use common sense before you propose these things and use common sense to see what
12:15you might be able to undo.
12:16And as a result, in 2019, we became a net energy exporter here in the
12:22United States for the very first time in my lifetime.
12:24So we became energy independent, if you will, in 2019.
12:28You know, which was obviously great.
12:30And, you know, I would just be doing, it's wild that, you know, that wouldn't
12:34be the goal always. There's talk about, you look at that in the developments in
12:40the United States, but you also, there's also been talk about bringing more Venezuelan oil
12:44back into the market to try to ease this.
12:47When you look at what President Trump's done with Maduro, and now we sort of
12:51have a more helping hand, I guess you could say, Venezuela controlling hand.
12:56I don't know what everyone would call it.
12:58You know, and then looking ahead at what is potential in Iran, depending on how
13:03everything goes down there. What does that mean for oil for the United States and
13:09just for the world moving forward, if you can kind of get Middle East under
13:13control, and then we also have more control in Venezuela?
13:17Well, I mean, you're eliminating that choke point that we talked about earlier in the
13:20Strait of Hormuz. So, I mean, Venezuela is on the water, obviously.
13:23So, I mean, they have an oil that they produce there.
13:25It's called heavy sour crude.
13:27And fortunately, many of the refineries here in the U .S.
13:30Gulf Coast are set up to refine exactly that type of oil.
13:33And they did for many, many years.
13:35So, Patovesa, which is a national oil company in Venezuela, was actually one of the
13:40better run oil companies in the world up until the Chavez administration took it over
13:45and literally ran it in the ground.
13:46And then Maduro, whatever was left of it, he ran, you know, he ran into
13:50the ground. But it was a very well run oil company.
13:54And a lot of, again, a lot of our refiners are set up for that
13:56type of oil. The larger point, though, is that because it's available and doesn't get
14:01stuck in these choke points, you know, it reduces the risk around the world, not
14:05just the United States, but around the world that that oil can become available.
14:09And I think that's the important work that President Trump is doing.
14:13The other point I'll make, too, is that right now, Maduro and, you know, Delce
14:17Rodriguez to some degree, but Maduro, because he was sanctioned, because Patovesa was sanctioned, didn't
14:23really have a market for that oil with the exception of China.
14:26So, they had to sell that market at a discount, a pretty steep discount, about
14:30$10 to $15 barrel. And most of it was going to China, much the same
14:35way that much of the Iranian oil today is going to China at a large
14:39discount. So, it'll be important to see how bringing Venezuela back online, perhaps once this
14:47conflict is done in the Middle East, if Iran chooses to return to civilized society
14:53and their oil comes back on the market.
14:56It'll be interesting to see how stable the world markets become as a result of
15:00that. It'll also be interesting to see how China deals with the loss of discounted
15:06oil. Keep in mind, they're an export country.
15:09They rely on manufacturing. They're heavily energy independent.
15:13If their energy costs go up because they don't have access to this discounted oil,
15:18it'll be interesting to see what happens to their inflation numbers and then, by extension,
15:22what happens to their positioning in the world economy.
15:24So, there's a lot going on.
15:26It's a very, very busy time, but it's also an exciting time if these regimes
15:31go away and this energy comes back to the world market.
15:34Got to take a quick commercial break.
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16:10T's and C's apply. You know, this is a bit random, but when you look
16:16at our power grid and you...
16:17look at AI and data centers, how much pressure is that putting on our power
16:21grid? Is that something to be thinking about?
16:23Oh, yeah, an enormous amount of pressure.
16:26And it's not just data centers, it's the economic growth.
16:29It's a bit misleading. Some of the press coverage I've seen recently tends to infer
16:34at least that the addition of a data center actually, you know, just linear progression
16:41puts that amount of pressure on the grid.
16:43There's no question that they're energy intense, but more and more of these hyperscalers and
16:47more and more of these data center developers are putting generation behind the grid, and
16:53they're willing to pay for their own generation.
16:55And that's an important step forward.
16:56But when you just look at the growth curves, they're phenomenal.
17:00I mean, it's just amazing how much we're talking about.
17:02I was just reviewing some data for some work I'm going to do with Stanford
17:06Business School this week. And, you know, we're going to move, these are metrics that
17:10no one really understands, but I'm going to say them anyway.
17:13We're going to move from about 400 terawatt hours worldwide to over 100 terawatt hours.
17:18Just trust me, those are big numbers.
17:20But that difference is the size of the economy of Japan.
17:25That's how much energy they use in Japan.
17:28So the growth rate in data centers over the course of the next six years
17:32is the equivalent of adding the entire country of Japan to the world energy market.
17:37That's how big these things are.
17:39That's great. Yeah. So how are we going to sustain that?
17:42Well, I think, I think, you know, again, back to what President Trump was doing
17:45in the very first or early parts of our term, you know, he was very
17:49interested at that time in nuclear power.
17:51And he thought that that was an answer.
17:53And he was very, very frustrated, candidly, with our inability to build nuclear here in
17:58the United States. And, you know, as one of the areas where he really pushed
18:02Rick and I and he pushed the NRC, he said, you've got to figure this
18:06out. He said, you know, it seems like France builds one every month and we
18:09can't build one except for every 30 years.
18:11What's going on here? And he was exactly right.
18:14And, you know, he also recognized very early that we were dependent upon Russia for
18:19our nuclear fuel cycle. We were as dependent on Russia, as a matter of fact,
18:23as Germany was for natural gas.
18:25You know, Germany was buying natural gas from Russia for years.
18:28And Mike Pompeo and I spent a lot of time over there telling him you're
18:31too dependent on Russia. Well, it turns out that we were very dependent on Russia
18:35for nuclear fuel. So we started a program at DOE to create what's called H
18:40-A -L -E -U, H -A -L -E -U, H -A -L -E -U, H
18:42-A -L -E -U. And what that is, is a fuel source for these very
18:46advanced, very small modular reactors.
18:49And it's an exciting time in the nuclear business because if these things are commercialized
18:53in the next two to three to four or five years, we can actually meet
18:56that demand that I just talked about with regard to data centers and some of
19:00the other things that we're seeing on our electricity grid today.
19:03But you know, as we rely more on AI as a society, we already know
19:07our power grid is susceptible to attack.
19:12So does that put us in a more vulnerable position?
19:15Yeah, of course. Everyone's in a vulnerable position when you think about cybersecurity.
19:19I mean, our lives have become so dependent upon online services of one type or
19:24another that you're almost by definition exposing yourself every time you get on your telephone.
19:29So everybody's vulnerable to some degree.
19:31What I think we've done a fairly good job with regard to the grid is
19:35cutting off the access to more sensitive types of information that Iran or North Korea,
19:42Russia, whoever it might be, would have access to.
19:45And I think today with the adoption of AI and with some of the developments
19:51around things like quantum computing, we've been able to severely reduce the cyber risk that
19:56we faced 10 years ago.
19:58Quantum computing in particular is very, very interesting.
20:01And I won't get into the details, but when you're dealing with qubits and entanglement,
20:06it may at some point in the future make cybersecurity completely irrelevant because there's just
20:11no way to to break the encrypted data that goes over a quantum computer.
20:18I'm realizing there's a lot I still need to learn from.
20:22No. You know, before we go, is there anything else you'd like to leave us
20:27with? It's just the simple fact that I'm excited.
20:30I mean, the, we all, our hearts all go out to the men and women
20:33who serve in the military and have to defend us each and every day and
20:36who are fighting the conflict that we see in the Middle East.
20:38The fact of the matter is, is that once this is over and everybody comes
20:42home and the energy markets stabilize, we're all going to realize that, you know, the
20:46work that we've all done over the course of the last two decades or so
20:50to make America more energy dependent is really going to pay enormous dividends over the
20:54course of the next two decades.
20:55And that's exciting because as we think about how our economy is going to be
20:59shaped by artificial intelligence, all the technologies that are being developed, we hope that they're
21:03built here because that means jobs and it means economic security for all Americans.
21:08And I'm excited about that.
21:10I want to thank you as secretary, but you told me to call you Dan.
21:13So I'm going to say, Dan, very, very interesting.
21:17Learned a lot from you.
21:18I still have a lot to learn with some of the last parts of the
21:21conversation with AI. I really appreciate you making the time, sir.
21:26Thanks for having me. It's been fun.
21:27That was former Energy Secretary Dan Barrett.
21:30Appreciate him for making the time to come on the show.
21:32Appreciate you guys at home for listening every Tuesday and Thursday, but you can listen
21:35throughout the week. I also want to thank John Cassio, my producer, for putting the
21:38show together. Until next time.
21:45people using money around the globe.
21:47With Wise, you can send, spend, and receive in over 40 currencies with no markups
21:52or hidden fees. Sending pounds across the pond, spending reyes in Rio, or getting paid
21:57in dollars for your side gig.
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22:02Plus, most transfers arrive in less than 20 seconds.
22:04Join 15 million customers internationally.
22:07Be smart. Get Wise. Download the Wise app or visit wise .com.
22:11T's and C's apply.