James Kinnear, Texaco

Texaco Headquarters, Harrison, N.Y., 1992 (Photo courtesy of James Kinnear's office)

International relationships among industries and governments are important for continued collaboration on a number of levels. The Middle East, and Saudi Arabia in particular, provides opportunities for further oil, gas, and energy development. James Kinnear discusses his views of energy security and also the roles countries including India, China, Brazil, and Saudi Arabia play in the development of conventional fossil fuel vs. diverse sources of energy, including natural gas and solar energy.

Energy security has been a key concern in US public policy circles since the early 1970s. You have seen this issue evolve over the years of your extended career and have dealt directly with it as president and CEO of Texaco. Can you share your thoughts on this long-standing public policy issue?

Obviously I favor, as an American citizen, energy security. However, one of the phrases that you hear a lot in Washington is “energy independence.” I don’t believe the two phrases are necessarily synonymous because the world is an increasingly competitive place. We have to keep our energy costs in this country not higher, or not greatly higher, than they are in the rest of the world. I believe in diversity of supply from around the world. I believe very, very strongly in conservation. I believe that motorcars can be made more efficient with existing technology today. I am certainly in favor of doing research on biofuels and solar power. I believe that taking a strong and positive set of actions in the Middle East is one of the best things the US could do. We’re starting to do it, and I certainly favor improving our dialogue with the Middle East.

How can the US best add to its energy diversity options? What resources should receive the most focus for cost-effective diversity expansion?

We can talk about diversity of supply from various countries that crude oil comes from, and then we can talk about diversity of various sources of energy. For example, I think that solar energy in certain parts of the world for certain uses could be very, very important. I believe that biofuels may become important. I don’t think that ethanol is necessarily cost-effective, but that doesn’t mean we shouldn’t be doing research on ethanol and other biofuels. Certainly research on photovoltaic and concentrated solar is something that we should be doing.

Regarding natural gas, the world seems to have an unusually rosy outlook. I am not so sure that natural gas should be used solely as transportation fuel. The reason I think that is if you replace gasoline with it, you’re replacing one relatively clean fuel with another relatively clean fuel. Perhaps you could replace a certain amount of diesel with it. But if you’re really interested in cleaning the environment, really serious about it, you would put natural gas – to the extent it is available – under boilers and replace coal with it. That gives you the biggest bang for the buck. I know that for the next 20 years, more than 80% of the energy in the US is going to come from fossil fuels. So, I think we should not turn our back on them; we should spend our money on trying to figure out how we can make them better and how we can use less of them through conservation.

Much has been said about our relations with Saudi Arabia and the Middle East – how do you see that core oil and trade relationship with the US evolving? What can we do in the US to improve common understandings about culture, trade, and global economics?

Saudi Arabia has been, and is certainly now, a great ally of ours. I think we should spend more time talking with them. I know that the Secretary of State Clinton went there and met with King Abdullah Bin Abdul Aziz – I thought that was a great thing to do. I am glad that Senator George Mitchell is out there working, and the Obama administration seems to be taking this issue to heart. I am glad that they do, and I am applauding these efforts.

With the growth of India and China, and even Brazil, the demand for future crude oil and refined products will grow outside the traditional regions of North America and Europe. What impact will this have on global relations, economic strength, overall trade, and sustainability for those countries?

Obviously the growth rate in petroleum consumption is higher outside the US, for the most part, than it is inside the US. There is a lot of fossil fuel around the world. I don’t see a shortage. I think that as the price of oil or fossil fuels rises in real terms, you will see things drawn into the mix that are not now used – the heavy crude oils, the tar sands, the very deepwater discoveries, and these kinds of things. I do believe there is a significant amount of fossil fuel out there yet to be used. That doesn’t mean there isn’t going to be competition for the least-costly materials; certainly there is.

As I pointed out, this is a competitive world, and the US is a major economy – still the biggest in the world. We can’t afford to have a significantly higher energy cost than do our competitors. You have to remember that this is a competitive world – this is something that when I talk publicly, I keep leaning on. Yes, I think there will be a lot of oil out there. In the US, we have to keep our eyes on it so that we’re getting oil that really is economic for the success of our investment program in this country and for the success in keeping jobs in this country.

What about the role of Saudi Arabia in US supply?

Saudi Arabia, as a matter of national policy, keeps surplus crude oil producing capacity. Their general policy is to maintain a surplus of 1.5 to 2 MMbbl/d. At the moment, they have surplus capacity of about 4 MMbbl/d. It is the existence of this surplus producing capacity that tends to stabilize oil supply around the world. The mere fact that it is there is of great benefit to the economies of the world. I think this is an issue that a lot of people do not understand. Keeping spare crude oil production capacity is extremely expensive – but the Saudis do it. They are happy to do it. They believe that the world is getting the benefit out of it – and I agree with them.

They have done a good job. I was out in the Khurais field in February. That is a brand-new 1.2-MMbbl/d field that Saudi Aramco has just brought onstream all at one time. Nobody in the history of the world has ever done that. It was a US $7 billion project, and it works. Saudi Aramco is really very good at these big projects. Actually, they are excellent at them.

This article is adapted from a longer piece that ran in the June 2010 issue of FUEL.