Q&A: API economist R. Dean Foreman on the U.S.-led ‘energy renaissance’ and the future of the industry

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Title: Chief economist, American Petroleum Institute

Education: Doctorate in economics, University of Florida

Professional experience: Before joining API in December, Foreman managed market monitoring and oil demand outlook at Saudi Aramco Strategy and Market Analysis. He has also worked in strategic planning, forecasting and finance and risk management at ExxonMobil, Talisman Energy and Sasol North America.

API chief economist R. Dean Foreman says the U.S. is leading an “energy renaissance” as the country cements its status as the world’s largest oil and gas producer. In the last decade, new technologies have enabled producers to efficiently tap abundant oil and natural gas reserves from shale formations across the country, Foreman says, and the revolution is transforming state and regional economies with billions of dollars of new investment.

The API, a national trade association representing more than 600 oil and gas companies, lobbies Congress on trade, taxation and regulation to further its members’ public policy goals. It also represents industry in lawsuits and legal proceedings and conducts research and economic analysis.

Foreman is currently touring colleges and universities with a message to students: Global growth is driving higher energy demand far into the future, fossil fuels will remain an important part of the changing energy mix even as renewables grow, and there are cutting-edge industry jobs for them in science, engineering, data analysis and finance.

After speaking to a Tulane University energy economics and finance class recently, Foreman talked to CityBusiness about the structural change happening in the industry, trying to persuade students to take up careers in oil and gas, and the future of offshore oil production in the Gulf of Mexico.

Why are you reaching out to students to talk about opportunities in the oil and industry and your message about its future?

Part of it is workforce development. Part of it is trying to make sure students that are going to be leaders in the energy industry — whether or not they take jobs in oil and gas — understand the value they are bringing and how much the energy industry has changed.

What is the structural change that the industry is undergoing and that you want students to see?

We want them to understand, first, the scale and enormity of just how dramatic this change has been from a shale production perspective. We call it the energy renaissance and it started really with using technologies in a way that hadn’t been before. As an industry, we are trying to take stock of the fact that people thought this was impossible 10 years ago.

And what we have seen for Louisiana, Texas, Ohio, Pennsylvania, North Dakota — in state after state — is that it has transformed the economy, and it’s getting hundreds of billions of dollars of investment and we are going to need people to do this work. So it is workforce development, but it is also trying to understand that we see through the power sector that we produce so much natural gas where we’ve won market share in natural gas in power.

But what has been the response to that? It’s not wholehearted embracement of natural gas, even though it is cutting emissions. We also understand that a lot of people, a lot of students are coming out where they are taught we should just have all renewables; we should just jump to the end game.

Natural gas is an important part of the energy transition to a lower emissions economy. And we’ve seen the demonstrable progress that can make, and we want that to continue. It’s remarkable to me as an economist that there is this very economic solution in natural gas that is there and is also helping the environment along the way.

Recognizing that our current generation of students is more environmentally conscious than maybe past generations, how do you change the historical view that oil and gas is “dirty” and convince them to consider careers in the industry?

It’s understanding that the U.S. is a unique example because of this critical mass of infrastructure, the policy that is enabling it, coupled with API standards for trying to make sure that we do things and maintain things in an environmentally responsible way and have license to do that.

The only way we can think to do it is to start to engage with people also at a grassroots level and help them understand the benefits that our industry is actually bringing, because they are demonstrable for the environment as well as the economy.

Especially with students, they have a self-interest as they are educating. They are going to choose an industry to work in, and these are jobs that not only can’t be offshored, they are jobs in which there will be internationally opportunities for experienced U.S. people.

What opportunities are there for students?

We are talking about engineers, finance people, scientists — STEM across the board. We are highlighting how we use technology to get to where we are today — everything from the sensory technology that we are using below the ground in pipelines to the use of big data and machine learning and artificial intelligence to understand geology. It’s also taking this understanding of global economics and putting it together in a cohesive thing that is strategically important for U.S. energy and companies as they go internationally and develop these resources.

We are technology companies. The industry is fundamentally not what it was 30 years ago.

We want to helping people understand that if they choose a career in our field, they are going to get cutting-edge skills that going to be applied in a way that’s important in the long run.

The solution that is tangible is this energy revolution that has come with natural gas, in particular, but also oil. Especially in the U.S., but it has potential globally. So we are starting with the U.S., starting with people who are engaged in thinking about our industry because we are going to need those people. If we don’t have great people solving those problems, we run out of innovation. It starts with people.

In Louisiana we have seen large investments in petrochemical manufacturing and liquefied natural gas export facilities. But offshore oil production remains a large piece of our energy economy. How do you view the future of offshore production in the U.S.?

From an API perspective, one of the reasons why you want access to the Outer Continental Shelf is that it’s the lifeblood. And it’s a capability that the U.S. has and continues to develop. We have a lot of idle rigs and capacity for deepwater development — not just in the U.S. but globally — because a lot of the bigger projects have been stymied in the downturn in the prices in the last few years. Now prices have come back up.

The Gulf of Mexico, especially in Louisiana, is an example of how you change the business model a bit, get some collaboration across the value chain and make something viable. And that’s how the North Sea has held on for decades and that’s how the North Sea still has investment going into it. You look for in-or-near-field production, you try to leverage and get the most out of the embedded infrastructure you have. And, frankly, that is economically efficient and it’s a good way to make sure you are maximizing the use of the resource space.

What I would say with the rest of the Outer Continental Shelf and the opportunities that go with it … if we found 100 miles offshore in the Atlantic or Eastern Gulf that there were elephant finds of oil, from a U.S. energy security standpoint we would want to know it is there. You’d also want your domestic industry to have an ability to have some way at getting at it.

In terms of the way our financial markets work and investment works for expectations, just knowing the resources are there is important. Think of the way our industry is valued. For service companies, it is based on the business they expect to get. For oil and gas producers, it is partly based on production but also on the backfilling of their resource base. If you understand those resources, that provides demonstrable value for U.S. industry.

There’s always risk, but we are doing things in a more environmentally responsible way for development than ever before. And if those resources are there, it’s in the best interest of the country and the people to understand it at least. At this point, we are not asking for the permission to develop it, we are just trying to understand it.

The offshore service industry in Louisiana was hit hard in the downturn. What would you say about its prospects for the future?

The first order of impact is the price environment. It wouldn’t take a tremendous change in the price environment to reactivate some of those projects. Now, people have to believe those prices will last. What we have seen over the last year is that prices instead of being $60 per barrel, roughly, are sitting closer to $70. API can’t predict the price for you, but what I can say is the global economy being so strong is why demand is so strong. And it’s not just demand here at home. If China continues to do well and Asia, that’s voracious demand for oil no matter how you cut it.

The U.S. has a role in this, and I think it will help Louisiana and other offshore development areas, but it takes time. The capacity is there. The question is when it is viable again. And I think it’s a matter of having some patience and faith that we need a lot of energy in all forms.

Mexico has adopted liberalizing reforms ending its monopoly on oil and gas production and is inviting in global investment and expertise. Our local and state officials and energy industry leaders want to play a role in its development. How do you view the opportunity in Mexico for U.S. energy companies?

Mexico could be great opportunity and, frankly, it’s a once in a multi-generation opportunity that they are opening to foreign investment in a way that hasn’t happened. But because of the approach we are seeing politically there, if they elect a very populist president in the coming election, we could see a backsliding of that.

The opportunity for U.S. companies in Mexico is really important. It’s upstream and it’s also downstream. They are greatly expanding their pipeline infrastructure and a lot of the refining industry needs rejuvenation. It’s becoming our largest export market for natural gas.

Part of the message we have tried to tell the current administration is — if you use Venezuela as an object lesson, there was a time when U.S. companies were activity participating in Venezuela and had projects in heavier oil and lighter oil there. But with the changes and populism that has happened in that country, it has changed them to look to China and or Russia, substantially, for all of their investment.

And what we are trying to say is, don’t put Mexico into that same corner because right now U.S. industry going into Mexico is a win-win for both countries in a big way. But if you damage that relationship in a meaningful way and make it very difficult, or put tariffs in place or if you get a very populist movement in Mexico that doesn’t want economic dependence on the U.S., Russia and China are also very willing to put investment into Mexico. Mexico is important and the North American Free Trade Agreement is important.

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