FEG 2019 Forum Q&A Series: The Evolving U.S. Energy Landscape

At the FEG 2019 Investment Forum, we sat down with panelist Jane Woodward, Founder and CEO of MAP, a renewable energy and natural gas investment firm, to discuss the evolving U.S. energy landscape.

Christian (00:00): Could you give us a little bit just on your background as it relates to energy? I know you've been in the space for a long time and you've seen a lot, could just start with your background and experience?

Jane Woodward (00:20): Thanks, Christian. It's so great to be here with you. It's interesting to look back. My roots are in geology. I have a bachelor's and master's degree in geology. Then I went and worked in the oil and gas business for three years, really back at a time when natural gas was not valued yet. People were very focused on oil and natural gas was still the booby prize. I was working for ARCO, and my specific job was to go out and start to understand natural gas. After that I went to Stanford Business School, and while I was at Stanford Business School I ended up helping Stanford deal with a really unique bequest where some alums of Stanford had gifted some oil and gas mineral rights, and they had mandated that the bulk of the royalty income off of those mineral rights be reinvested in more oil and gas royalty interests. And through a unique set of situations, I was asked to, while I was working away in business school, to try and help Stanford solve that problem and that became the roots of MAP, which still exists today.

Christian (01:26): And MAP, of course, historically is invested in mineral royalties, but more recently in renewables, and we'll talk more about that in a moment. But just based on your roughly 30 years in the business, how has your experience shaped your view of the evolution of the energy sector?

Jane Woodward (01:46): That's a great question, Christian. I think one of the things, when I talked about my background, I forgot to really make the point and a lead to answering your next question, which was, I started investing in oil and gas minerals in 1986. And by 2004, our firm MAP, we started fairly early on investing in the renewable energy space funding renewable energy project development, and part of what gave us the confidence to do that at that time was really studying one of the things in my background also that I didn't mention is, back in 1991 I started teaching a class at Stanford after I'd graduated from the business school, that we call today understanding energy. And I continue to teach that class with colleagues. And I think in the course of teaching that class, when you look at how... One of my motivations to teach it was to stay on top of how is the energy industry changing.

And there's really three key areas of change for me as I look at it. One is technology change, which is huge. Another is change in the markets and how they work, and how that combined with technology changes things. And then the third driver of change is our social framework. And watching how we've come to certainly today, one of the biggest social changes is our awareness of climate change, which is something... When I first got into the energy business, our focus socially was much more just our fear of energy security and was there enough energy? And we've seen a steady evolution to placing a premium on understanding what the consequences of harnessing energy resources to deliver cold beers and hot showers. What are the consequences of that? And looking at that, thinking about it more as an energy system.

Christian (03:40): So, as you think about the energy landscape today, renewables are becoming a bigger part of the mix, what are the biggest challenges that you see in the wider spread adoption of renewable energy sources in the US?

Jane Woodward (03:58): Well, that is a big question.

Christian (04:00): Anyway you can give two or three?

Jane Woodward (04:02): Yeah, yeah. I think the biggest challenge is education to help. Most Americans don't understand that renewable energy even without subsidy or with very modest subsidy because all energy resources are subsidized in one way shape or form, but most Americans are not yet comfortable. It's not conceivable to them that renewable energy is hands down the most competitive source of new electricity that we can build in our country today.

And the stats all show that that is just not part of the common vocabulary of Americans yet. And yet we're seeing utilities across the country, whether it's in Indiana or Georgia or Utah, that people might not expect this making big announcements and resource plans that over the next 10 to 20 years, they're going to be shutting down their coal and their nuclear power because that's most expensive form of generation and they're replacing it with renewables, wind utility scale, solar, energy storage, and natural gas that are displacing those traditionally dominant large symbolic baseload sources of electricity that most people have assumed is where we get most of our power. So we're just in the midst of that big transition.

Christian (05:30): Yeah. One of the things we hear a lot in our discussion with clients or with others just about renewables, as I said, it's good that it's growing but the wind doesn't always blow, sun doesn't always shine. So you got to have some kind of backup, but as you've said, is it a legitimate concern or question?

Jane Woodward (05:49): I think it's an absolutely legitimate question. The good news is that grid managers throughout our country have been working for the last decade to absorb more and more renewables into our system and into our electric system. And a big thing that's made that possible is there's been enormous reform in terms of our electric power markets and their ability to absorb these various sources of electricity and integrate them. So that just because the winds blowing in one part of the country at one time, there's wind farms in other parts of the country that are blowing in another and when you integrate those, it's not unlike an investment portfolio that has just a couple of stocks in it-

Christian (05:49): Right.

Jane Woodward (06:31): But if you integrate these sources of renewables into a broader portfolio, the result is a very significant level of stability.

Christian (06:38): So in other words, the power can move from an area where, let's just say the wind is blowing sun doesn't shine to an area where maybe it's not in that integration or diversification allows for broader adoption of renewable energy. Is that fair to say?

Jane Woodward (06:57): That's fair to say. And I think an important thing, even though the sun doesn't shine every hour of the day and the wind doesn't blow every hour of the day, wind and solar are very predictable, actually, seasonally, a day ahead. And as I said that the grid and all our fantastic modeling and computing capacity, and the fact that the power markets have moved from being very rigid and base-load focused, which favored coal and nuclear to being very flexible and their ability to absorb wind, solar, where the fuel is free. And ultimately this is the lowest cost new source of electricity. And then we have natural gas and more and more energy storage there to help bring our level of absorbing renewables into the grid from pretty significant levels up to some of the very significant goals that states like California, New Mexico, Connecticut, New York, Nevada, there's 10 states that have set these long range goals of moving their electric system for the state to a 100% renewables.

Christian (08:04): So California is a good example trying to move to a 100%. Now, how feasible is that and what does that timeframe look like? And I would imagine storage has to be a part of that equation in California to some degree. Is that accurate or?

Jane Woodward (08:20): That's definitely accurate.

Christian (08:21): What kind of has to happen for California to get to that goal?

Jane Woodward (08:26): Well, the good news is before California and because there's a tendency to think, Oh, California, right, California is the crazy thing. So I like to call out that Connecticut, New York, Wisconsin, New Mexico, Nevada, other states have set similar goals and they haven't done it in a light-hearted manner. They've done a lot of modeling. They've hired nationally acclaimed consultants to help them say, "Can we do this?" And the interesting thing about wind and solar and energy storage is fundamentally the technologies. And we've learned a lot at this forum that's happening here. And in other parts of our lives about how technology can go through really significant cost reductions over time. And so the cost feasibility, which is part of what's driving, honestly these 100% percent renewable goals, it's not just agreeing these states. It's because the state legislatures who adopting these goals, they believe it's the most cost effective, most reliable, and by the way, least emissions' scenario for their states.

And they're laying out these goals with a 10, 20, 30 year timeframe to achieve these goals. And one of the things I wanted to help everybody understand as they read about these 100% renewable objectives for states is to understand that this idea of setting renewable portfolio standards is not a new idea. If you actually go back to 1983, Iowa was the first state to create a renewable portfolio standard. And it wasn't for a 100% but it was to say, "We're going to put a stake in the ground and as a state, we're going to plan to integrate renewables into our electric power mix."

Christian (10:08): So, as for natural gas, we have abundant US supplies now, probably more than maybe we can consume here, which means we could export natural gas. What does that look like? And then what does the timeframe look like around the US becoming an exporter of natural gas as opposed to 10 or 15 years ago, we were thinking about importing natural gas?

Jane Woodward (10:35): We really were. 10 or 15 years ago as a country, we were quite nervous about our ability to meet our appetite for natural gas within the United States. And so this is an example, one of your earlier questions was about change. And I think when we look back from how we thought about natural gas and meeting the supply demand mix, things have changed dramatically. So most Americans don't know that we're the number one producer of natural gas in the world. And the United States is the number one consumer of natural gas in the world. And interestingly we're today at a place where 8% of what we produce in the United States is being exported today. So in terms of our role, we're the number three LNG, liquified natural gas exporter in the world today, Australia and Qatar are larger exporters' than we are, but McKinsey and some other analysts believe that will be the number one LNG export in the world by 2022. That's just a few years away.

Christian (11:37): And that requires infrastructure build out I assume.

Jane Woodward (11:40): It does. We have five major LNG facilities operating today. There are eight additional facilities under construction right now, and folks have done some math to suggest those eight additional facilities are equal in their capacity to about 15% of US production today. So that shows that's going to be a very significant driver of demand for US natural gas production.

Christian (12:10): So, let's just talk about natural gas as a cleaner fuel source relative, obviously it's cleaner than coal, but it's still a hydrocarbon, what are the most common critiques that people might have around natural gas just as a fuel source? It seems like on the surface, it's great, we have abundant resources domestically and it's a cleaner option. Are there any critiques that you hear about natural gas?

Jane Woodward (12:39): Well, I think, as I mentioned when you asked me about my background, when I first got involved in the natural gas business, it was described as the booby prize of looking for oil, because we didn't know what to do with natural gas, because it had such a low energy density.

Christian (12:53): Meaning you produced oil and then you also got natural gas.

Jane Woodward (12:55): We got natural gas, but the big objective was oil. Then soon after that, people came to describe natural gas as the blue bridge to the green future. That as you pointed out natural gas from... As you burn natural gas, it has lower carbon dioxide emissions than coal does. And then oil does. But the trick of natural gas is that methane, CH4, which is the primary component of natural gas is a greenhouse gas itself. And so really the issue that's a very interesting one facing the oil and gas industry globally today is to look at how we can minimize leakage from the upstream of oil and gas to the midstream. And then in the distribution of natural gas, from our distribution system to our homes and businesses and industries, how can we minimize the leakage of methane because it is a potent greenhouse gas. And it's something our economy, our public has not focused on until fairly recently.

And the good news is due to the great technology revolutions that have been going on, we're able to sensor and monitor and control and unfortunately we can't see methane.

Christian (14:08): Right.

Jane Woodward (14:08): We can see coal, actually. We can see coal, we can see nuclear waste even. The methane is hard to see. And so we're rapidly developing the ability to look for leakage in the system and minimize that climate impact. So I think that's the largest critique, but one that's significant and leading environmental groups like Environmental Defense and others are working with oil and gas industry and utilities that distribute natural gas to look for ways to minimize leakage in the system.

Christian (14:37): Okay. That's very helpful, Jane. We really appreciate your insights. This has been great and we look forward to hearing more this afternoon.

Jane Woodward (14:46): Excellent. It's wonderful to be with you, Christian.