Book Review: Robert Hefner's 'The Grand Energy Transition'

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Includes: APA, APC, APD, BP, CHK, COP, F, GE, GM, NBR, RRC, SLB, TM, UNG
by: Michael Fitzsimmons

Robert Hefner’s new book, The GET: Grand Energy Transition, is beautifully simple. Although the book is full of the complexities involved in the history of energy exploration, statistics, logic, and policy, the picture on the book’s cover sums up everything quite simply: society is transitioning from an unsustainable past based on solid and liquid energy sources (coal and oil) to a future of sustainable life based on energy gases (natural gas, wind, solar, hydrogen). Having seen the cover and read the book, it seems so obvious to me now. Yet the mindset unveiled in this book is unique, ground breaking, and critically relevant today.

Mr. Hefner certainly has the credentials to speak authoritatively about energy and natural gas. He is a geologist, geophysicist, and a true pioneer in natural gas exploration. After working for Philips Petroleum Hefner founded his own company, GHK. In 1969 GHK, and its partners drilled a well over 24,000 feet deep in the Anadarko Basin. The well has produced 21 Bcf of natural gas (the equivalent of 3.6 million barrels of oil) and is still producing today. In 1997, GHK discovered the Potato Hills natural gas field in southeastern Oklahoma, one of the larger North American conventional onshore natural gas fields discovered in recent decades. Mr. Hefner has frequently spoken to Congressional committees, serves as Advisory Director of the Center for a New American Security (CNAS), is a Fellow of the Royal Geographic Society in London, and is a member of the International Council at the Belfer Center for Science and International Affairs at Harvard’s Kennedy School of Government. He holds a Petroleum Geology degree from the University of Oklahoma. He has been in the natural gas business for some 50 years.

In The GET, Mr. Hefner describes the evolution of man’s energy use from solids (woods, dung, coal) to liquids (gasoline) to gases (natural gas, wind, solar, hydrogen) as a progression from dirty, carbon heavy complex chemical structures to cleaner, carbon light, fuels of a simpler chemical structure. The chart below summarizes this transition:

Click to enlarge

As man travels down the energy path from solid wood and coal to liquid gasoline and to gaseous natural gas and hydrogen, the progression is one of carbon heavy to carbon light; from complex chemical structure to simple; from toxic particulate emissions to no particulate emissions; and finally, from high CO2 emissions to no CO2 emissions. Hydrogen, the holy grail of energy, is the simplest and cleanest of all fuels.

Hefner includes wind as an energy gas because after all, the atmosphere is gaseous. Solar too is gas energy because the sun is a big ball of burning hydrogen. Hefner also makes a strong case that we are evolving from scarce energy sources to abundant energy sources as hydrogen is the most abundant element and makes up 90% of the observable universe. Though we know natural gas is produced in many diverse biological processes, Hefner presents a strong logical case for the origination of non-biologically created natural gas. He believes it is quite possible, indeed probable, that the Earth contains more energy in the form of natural gas than that of coal and oil combined. Natural gas is always found with coal and oil discoveries, but it is possible to find huge natural gas reserves where there is an absence of oil or coal.

Hefner introduces a graph which shows waves of energy use. He explains how the normal declining wave of coal and increasing wave of natural gas were interrupted by government interventions which regulated well head prices and prohibited natural gas usage for power generation and industrial usage. The government enacted these policies after being convinced by Exxon (NYSE:XOM) that the US was running out of natural gas. Hefner’s recollection of the governmental hearings where he went toe-to-toe with big oil is fascinating. Unfortunately, the government believed Exxon instead of Hefner.

Exxon’s testimony was that the US had a total of 300 Tcf of natural gas resources. Hefner’s estimation at the time was for US natural gas reserves to be on the order of 1,500-2,000 Tcf (his current estimate is 3,000 Tcf). History has since vindicated Mr. Hefner as now most experts estimate remaining natural gas resources at 1,500-2,000 Tcf. Governmental policies based on big oil’s faulty natural gas estimates led to huge increases in US coal and oil consumption and resulted in the “three intolerables” we face today: economic contraction, environmental degradation (including some 15-20 billion tons of CO2 from coal plant additions since 1978 that are now in our atmosphere that otherwise would not have been there!), and geopolitical and geostrategic tensions. How ironic (and tragic) that Oklahoma, the state in which Hefner and Boone Pickens call home, went from generating 95% of its electricity from natural gas to 50% from coal.

The “real inconvenient truth,” Hefner says, is that government subsidies are impeding the adoption of abundant, cleaner and cheaper natural gas by extending the life of oil and coal well beyond what otherwise would have been their natural rates of decline. If government policy instead allowed the full external costs of coal and oil (military costs to secure supply, health care costs due to toxic emissions, environmental costs, efficiency costs, etc.) to bleed through to the consumer, the superior energy solutions of natural gas, wind, and solar would come to the fore. Natural gas would then attain its destiny as the “go-to” fuel of choice and accelerate the decline of coal and oil consumption while significantly reducing greenhouse gas emissions.

Going forward, with recent production and reserve estimates coming from the Barnett, Haynesville, Marcellus shale formations, among others, have vindicated Mr. Hefner’s testimony of decades ago. His contention was and is that “peak oil” does NOT mean “peak natural gas” and he has been proven correct - US and world natural gas supplies are abundant and can be relied upon by policymakers for 100 years. The government should recognize that natural gas is the only domestic fuel that can be scaled-up over the next decade in order to achieve significant reductions in the use of coal and foreign oil as well as significantly reducing CO2 and particulate emissions. Hefner presents energy policies to reestablish the industrial might of America by becoming the world leader in CNG vehicles and CNG refueling capabilities.

Hefner refers to several instances where the power of words should not be underestimated. He urges the media and policymakers to be mindful of the nuances. For instance:

  • What big oil refers to as “unconventional natural gas” should really be termed “conventional”. It is a critical matter of perception as “unconventional” conveys to policymakers that this natural gas is somehow uncertain and limited when in fact, the Haynesville shale (which big oil refers to as unconventional) could well become one of the most prolific natural gas fields in the world and hold some 2-300 Tcf of recoverable natural gas! Or, as much as the Exxon’s early 1980’s estimate of total US natural gas reserves.
  • The term “fossil fuels” lumps coal, oil, and natural gas together. Hefner suggests policymakers and journalists refrain from using the term “fossil fuels” because it mixes the historical big energy problems (coal and oil) together with the 21st century solution (natural gas). Each fuel should instead be discussed on its own merits. Also, it is important to note that while coal and oil are definitely fossil fuels, Hefner’s argument that natural gas was also created by non-biological origins is a strong one.

Hefner is a rare mind indeed. The book is chock full of “Hefnerisms”. My favorite:

Coal-to-liquids is an attempt to convert a nineteenth-century solid energy source to a twentieth-century liquid source that has no place in the twenty-first century.

This is classic Hefner.

The great energy transition has already begun. The nations who successfully adopt and accelerate the energy gases trend will be successful and enter an era of unprecedented growth and prosperity. Those who resist and stay addicted to coal and oil will not succeed. After reading The GET, I was left with a sense of optimism based on the knowledge that there are indeed policy solutions to protect America from peak oil. The challenge is making it happen.

From an investment perspective, Mr. Hefner’s energy policy suggestions would obviously have positive effects on the overall economy and US equity markets. Specifically, the policies would favor companies with high reserves of natural gas (CHK, COP, BP), independent natural gas producers (RRC, APC, and APA), energy services companies (SLB, NBR), clean energy infrastructure plays like GE in wind turbines and compressors, hydrogen infrastructure plays like APD, and perhaps even the moribund automotive industry players like TM, F, and GM. Ultimately natural gas transportation would be bullish for the natural gas ETF (NYSEARCA:UNG).

I encourage everyone to learn more about Robert Hefner III and obtain a copy of The GET, which you can do here.

Disclosures: the author (of this book review, Mr. Fitzsimmons) owns COP.