Announcer:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House. Our podcast from Intercontinental Exchange on markets, leadership and vision and global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism right here, right now at the NYSE and at ISIS exchanges and clearinghouses around the world, and now welcome, Inside the Ice House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
Here's something I read the other day, I'm going to quote from it. Over 2 billion people still cook their daily meals and heat their homes with traditional fuels, typically wood, dung, agricultural waste or charcoal simply for lack of access to a basic stove and a liquid petroleum gas canister. Over 3 million people die every year from the resulting indoor air pollution. Really? That is an alarming, really alarming stat from a report written by our guest today, Liberty Energy CEO, Chris Wright, and the team that works with him. The document surveys today's top global energy challenges and what most listeners probably will find surprising is that it happens to put climate change is pretty far down the rung of those worries. Chris, whose career began developing the science of predicting how fractures will form allowing the United States to tap the resources to become a net positive energy producer is now mapping out how climate first policies in the finance and political spaces are going to affect the world.
The document that Chris wrote is a fascinating deep dive into the lesser talked about impacts of energy both now and in the future. It's the subject of our conversation with a guest a couple of weeks ago on Episode 322, Enel Group CEO, Francesco Starace. He spoke to that as well when he talked about the work that's needed to make sure that the energy transition doesn't further the divide between the haves and have-nots. Chris joins us today to offer a different perspective on the impact and promise of hydrocarbons on the quality of life and its use as an economic fertilizer to the modern world. Our conversation with Liberty Energy CEO, Chris Wright, and the ESG of energy, the science of hydrocarbon extraction and his career as a tech nerd turned entrepreneur. That's all coming up right after this.
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Josh King:
Our guest today, Chris Wright, is the Chair and CEO of Liberty Energy. That's NYSE ticker symbol LBRT. Chris previously served as CEO of Pinnacle Technologies and Stroud Energy. Chris currently serves on the board of directors for Liberty Resources, Urban Solutions Group, US Ceramics, and the Federal Reserve Bank of Denver. Welcome, Chris, Inside the Ice House.
Chris Wright:
Thanks, Josh. Thrilled to be here.
Josh King:
Liberty's ESG report most recently published this August and is entitled Bettering Human Lives. How does the title capture what most people forget about the proliferation of hydrocarbon energy and the products that we use in the modern world?
Chris Wright:
Yeah. I guess the title is everything has tradeoffs. We hear relentlessly about the negatives of hydrocarbons and they're real, but we don't hear as much about the benefits of hydrocarbons. As I often say, our industry does a dollar or two of positive to the world and maybe a nickel or dime of damage. We'd love to shrink that nickel or dime for sure, and that's a focus in our industry, but every bit as important is growing that dollar or two of benefit that we bring to the world.
Josh King:
I think my world has benefited, Chris, when I'll be skiing on Windham Mountain the day after Thanksgiving wearing my North Face parka and pants. But if I wanted them to slap a Liberty Energy logo on it, they'd probably say no thanks, but chances are that product is 75% oil and gas to begin with.
Chris Wright:
Yeah. In fact, the products you're wearing today are pretty close to a hundred percent oil and gas, if you're wearing north face jackets or ski pants and all that. Of course, you're doing an activity skiing that was unthinkable pre-hydrocarbons. The transportation, the wealth to go away and spend a day on an electric or diesel-powered chairlift taking you up the mountain, skiing down on skis made out of oil and gas and boots made out of oil and gas and clothes made out of oil and gas and goggles, so yes, it is the ultimate incarnation of what can come from a hydrocarbon-enabled modern world. I'm a skier, outdoor person just like you.
Josh King:
In an article from Forbes last year, David Blackman wrote that few oil and gas executives are willing to talk about ESG, with the exception he noted of Liberty's Chris Wright. The death of discourse has come up a number of times in several recent conversations that we've had on this podcast. Do you think that audiences or segments of it are willing to set aside preconceived notions when you begin talking about the misunderstood or gray areas around energy like that north face example that I used? No one thinks about that I'm wearing oil and gas when I'm skiing down the mountain.
Chris Wright:
Now, my experience has been people are remarkably open-minded. People are resistant, particularly executives in our industry, they're resistant to engage. But every time I've engaged look over decades, I get a receptive, thoughtful audience pretty much everywhere I go. I'll go speak at a liberal university on climate change and people say, "Oh, they're going to stone you." Not at all. If you walk up there and speak honestly and candidly to people, I think the vast majority of humanity wants to have those dialogues, wants to understand those. In fact, they're starved from people staying away from these very serious topics. I think it's a big mistake of our industry.
Josh King:
Where do you think you got the skill? Where do you think you got the comfort on stage to stand up even if you know that 60%, 70% in the audience are probably going to begin by disagreeing with you? You may turn 15% of those in the course of your conversation, but you start from a deck of saying, "I disagree with the guy."
Chris Wright:
I've always liked that kind of discourse myself. From a young kid, if I hear someone speak that I think is thoughtful and they're being honest, I'm fascinated by what they say, whether I agree with them or not. If I think someone's giving me talking points or carefully scripted bullets or they're saying something they clearly don't believe but they want to say, that's a turnoff. I don't have much use for that. But someone who will speak honestly and candidly, I love that, and if I disagree with them, I love that back and forth. Since I was a kid, I've loved that.
Josh King:
You conjure that time for you as a kid. There are people that I listened to, watched as a kid. I remember Larry King on his radio show late at night, and both the way his voice sounded, the way his guest's voice sounded, I really bonded with that. Who are the people as you were spending those late nights in Colorado as a kid forming your own world view were influential?
Chris Wright:
That's a great question. I would say Larry King is certainly one of those, yeah. That's a voice I remember from a young age. Comedians would also. Heck, when I was young, Bill Cosby or Richard Pryor, comedians who said things that you knew they weren't supposed to say but you wanted to hear and that made you laugh and was funny. I think that vulnerability of putting it all out there because they're saying stuff they believe or that they've seen. You're not supposed to say that stuff, but they're doing it. I've always respected candor and honesty. If I've had one role model, that's been my goal, just be honest. If you're in front of people, don't say what they think you want to hear you say, just be honest and be candid.
Josh King:
Speaking of the way people talk, we heard you say many times that you speak too fast for someone to have been born a Coloradan. What brought the Wright family from New Jersey to Denver when you were six?
Chris Wright:
Oh, I think the beautiful Colorado Mountains, just what you were talking about. Both of my parents were originally from the east coast, but my dad went to college at CU Boulder. After that, he got a job in New York City, so I was born back there as were my siblings, but I think he waited for the chance he could get a job in Colorado. When I was six, he got a job in Colorado and the family moved out. Even my mom, an East Coaster, when we arrived in Colorado said, "We're never leaving." Mom and dad have not left Colorado. Not being too sharp, I left for a while too. I did leave for a while, as did my wife who grew up in Colorado, but we came back 11, 12 years ago and we're here for good now.
Josh King:
Your dad's career, I think, was based around the markets. Were you aware of the markets growing up? Where did your interest in science come from?
Chris Wright:
Wow. Yeah. My dad was in business in the markets, yeah, his whole career, and I wouldn't say wildly aware. When I went to college in the 80s, certainly there was high inflation and maybe bad economic time, I was a little bit aware of that, but no, I would not say overly focused in the markets or understanding that. But my brother Bill and I were super fascinated by science, and it may have started with fiction, reading science fiction. Isaac Azimov or Ray Bradbury, and these sort of fantastical things that maybe could come in the future were so fascinating to me. To me, my whole I got pulled into energy by looking at stars and I was just amazed by how far away they are, but without even binoculars I could see them. That made me think, "Wow, that is a badass candle. What is it made of? How does it work?" That pulled me into science.
Josh King:
You look up to the stars, you use the sextant and you can use them for navigation as well. Your mom, Gaela, grew up in Massachusetts but spent her youth sailing and traveling around the world. Is that where you and your brother's interest in the outdoors also comes from?
Chris Wright:
Yeah, well, it came up from skiing Colorado. My dad loved to ski, but he was very much a go to skier and ride the lift and that's what he loved to do and he was very good skier. But to my brother and I, it was always like, "What's that next mountain over there that's got no lifts on it?" We want to go up that mountain. What might be on the backside of that? We always wanted to go. We skied out of bounds, the ski patrol chased us some, we always wanted to push that limits. Then, obviously, first you start in the summer, you can go hike and climb and explore these mountains, and then that moved on to let's do the same things in the winter. Now, back country skiing and all this stuff has grown into wider sports, but we've always had a lust for, what's behind that corner that you can't see and how do you get there?
Josh King:
Is skinning or helicoptering your preferred method of getting there?
Chris Wright:
Skinning, to this day, I've still never been helicopter skiing, and the main reason for that, my wife was a professional ski racer. She's a phenomenal skier. She loves to skin up and ski down steep-and-deep mountains as well. But all the helicopter ski trips are only dudes and they don't want a gal on them. I've always said, "Well, I'm not going without my wife," and so I've still never helicopter skied, but going to do that in the next few years and almost certainly with my wife.
Josh King:
Well, I suppose if you can do that for the rest of your life injury-free, you will never leave Colorado, but I think it was an ACL tear that brought you back east. Is that what made you decide to go to MIT?
Chris Wright:
Josh, you know more about me than me, but yes. I was working a summer job on a landscaping crew and in fact, the end of my junior year in high school at a friend's graduation party, I tore my ACL goofing around playing volleyball. I couldn't work on the landscaping crew that summer, at least for the next six weeks. I went back to the east coast because my mom had family living in Connecticut and went to visit Harvard and MIT. They were the east coast schools I knew the names of. I didn't think I was interested in them, but something about walking on the MIT campus and a couple of dialogues I had, I knew within an hour this is where I was going to college.
Josh King:
I grew up in Newton, so I spent a lot of time looking across the Charles River at Harvard and MIT's campus. That first year you were there, the summer working on the Honeywell Thermo Jet Printer Project taught you that you weren't really cut out to be a laboratory-based scientist, but instead there was this budding entrepreneur in you that just wanted to get out. How did you discover that?
Chris Wright:
A hundred percent. Look, I love science, I love big science, but yeah, as you just said, I realized very quickly I wasn't cut out, just didn't have the patience and discipline for the painstaking and slow process of conducting big science experiments, although the concept and the issues are huge to me. I worked on a summer team at Honeywell, a nine-person team with six months to develop a manufacturable prototype of a thermal printer, the competing technology for laser printers that were just coming out then. At the end of that summer I thought, "Man, people were really nice to me, this 18 year old naive kid working inside, so adult life was going to be okay." But also, on that team, two people, Doug Beatty and Mike McNitt really dominated everything that was in that design. It was not split evenly or even close to evenly among the nine people on the team.
Being a lifelong crazy competitive guy, I realized, "Wow! If you only had the all-in people, only had the best people, you could be so much better than a bigger company that has the bell curve." It's from that summer that I realize, "Now, I know what I'm going to do. I'm not going to be a scientist, I'm going to be an entrepreneur." I've never worked for a company with more than 10 employees that I didn't start from that summer.
Josh King:
Did you ever reach back out to Doug and Mike to thank them for that inspiration?
Chris Wright:
Sadly not. I tried to track down Mike and Doug on Facebook and had a few words, but sadly, I should say not yet. I plan to. I plan to.
Josh King:
You get your bachelor's, Chris, and you head back west, where I think maybe a missed paycheck and a favor from your future wife led you into this industry that you now know and love in oil and gas. How did that semester at Berkeley studying electrical engineering change the course of your career?
Chris Wright:
Yeah, that was it. $862 a month was my teaching assistant, graduate school is basically, engineering is a low-paid job, which is what I wanted. I wanted to be independent of my father and financially on my own, but they didn't have my first paycheck. They were polite and sorry, we only do a check run once a month. We'll give you two next month, so I had to get a job quickly. I'd met a gal two years before when I was 18 and yeah, now my wife of almost 30 years and mother of the kids and luckiest thing in my life and I've had a very lucky life, but she introduced me to a tiny company in the Bay Area, about seven people that had a problem maybe I could solve and I started to work for them every Fridays when I was in graduate school. They really had a technology they were selling into the oil and gas industry. I learned what hydraulic fracturing was and a little bit about the oil and gas industry then, Fall of 1985.
Josh King:
Yeah. This is probably 20 years before for most of us fracing is even in our vernacular, Chris. You're working at Hunter Geophysics, you went back to MIT, began working on the science that would underpin Pinnacle, which you eventually co-founded. When did you realize that, in fact, if you just looked at the calendar by the year 2000, there'd be far more available oil and gas than plasma to power the world?
Chris Wright:
Yes. Still fascinated in fusion energy. I still think it comes. Of course, there's lots of ways to produce energy, but most all of them, like nuclear, go into the electricity sector. Electricity is 20% of global energy. That's a big deal, but that doesn't touch the other 80%. Nuclear with process heat could in the future but hasn't so far. At Pinnacle, we develop these technologies to measure how fractures grow underground. Okay, oil and gas is the dominant energy source then, it looked like it was certainly going to be for a while, but it was really the late 90s and these great entrepreneurs at Mitchell Energy that heard myself speak in East Texas and one of my colleagues speak, I think in Fort Worth, and said, "We're going to try your idea, we'll give it three tries."
That was just a different way to frac, what were experimental, shale reservoirs, the Barnett Shale then. That's '97, '98. At that time, it was like, "Wow, this could be a big deal for gas production from the Barnett in Texas." I certainly had no concept at all this would have global energy ramifications. That was years later for me to realize how big this would become.
Josh King:
Pinnacle originally began, I think, with about a hundred thousand dollars earmarked to acquire the assets of Hunter Geophysics, but how did that plan go awry? Why is tracking a fracture so key to the energy business?
Chris Wright:
The plan went awry because Halliburton, at the end of the day, obviously, a giant oil service company decided that they wanted to own the assets of Hunter Geophysics, which were some patents on fracture mapping, some instrument design and some software, all of which I had worked on. That went awry because Halliburton showed up with much deeper pockets and they bought the assets. I was still fired up to start Pinnacle and I had an investor who was investing a hundred thousand dollars. We had to bootstrap it without that and develop our own instruments, our own software. A good source of our funding became consulting work I did in Japan on geothermal. It was also on hydraulic fracturing. I was just a young scrappy guy that wanted to get good humans and be part of some mission. But what was key was hydraulic fracturing then was already important to oil and gas production in the US potentially important to geothermal energy production, but you're doing it one or two or even three miles underground so no one can see it.
Where you place wells, how do you design these fracs that you pump? It was a multi-billion dollar industry with total blindfolded. I was certainly a believer. If we could get technologies that could see at least approximately what was happening one or two miles underground, there's got to be value in that. I had no idea this would lead to a shale revolution, but I knew there would be value in this ability to understand what was happening underground.
Josh King:
Those years that Halliburton comes in with its deep pockets and decides that it's going to buy Pinnacle, that New York Stock Exchange listed company under the ticker symbol HAL probably is still run by Dick Cheney in those days. You've described that deal as selling your own child. Why did that lead you, at some point, to say that, "IPO would be the path for Liberty when eventually it was its time"?
Chris Wright:
Well, for Pinnacle, yeah, I ran for 10 years and then I merged it into another public New York Stock Exchange company called Carbo Ceramic, a smaller public company but less salaried employees than Pinnacle. No change in our culture, no change in our 35% compound a growth rate. It was like we had extra capital for our new micro-seismic technology, but it didn't mess up our culture. In parallel with this, I had an early shale gas company, so I was a very busy guy. Then, I decided with young kids at home to take a break, a sabbatical from work. I coached my kids' Little League teams and did some bike racing and a little bit of traveling. But during that break, that time period, Halliburton came to Carbo and they bought Pinnacle into Halliburton fully in their rights, maybe I should be flattered, they were interested in the technology and people, and I think they did a fine job with it. But just a bigger bureaucracy, it wasn't a hotbed of entrepreneurship and I had convinced everyone to come join Pinnacle for this different culture, it'll be like this forever.
Maybe I felt a little guilt of stepping out and then Pinnacle being absorbed into a bigger company. You're right. When we started Liberty, I said to our very early investors, "We will never sell this company. This is going to be a special differential culture company that's going to impact global energy." It's a mission of love and passion for me and we've got to get liquidity for investors, whether that's private investors taking out other private investors, and really, the ultimate solution. I'm quite proud it was to bring a public on the New York Stock Exchange, this cathedral of capitalism where Liberty, I think, will exist for a long, long time to come.
Josh King:
I spent some time today, Chris, looking at the website of Liberty. I was looking at these images of the quiet fleet. It says that, I'm going to quote it, "Sound levels at a standard 500-foot setback from a quiet fleet frac location are now near the levels of a central air-conditioning unit or a typical indoor conversation." But I wonder, given everything that I'm reading and seeing, is the US shale revolution over, evolved into something different or is it still ongoing?
Chris Wright:
Oh, it's ongoing. It has obviously transformed global energy markets, both in natural gas and in oil. I would say reset. I'm one of the weird oil and gas guys that celebrated these reset of oil prices from over a hundred dollars a barrel to $50 or $60 a barrel. Save the world trillions of dollars, helping low-income people have better opportunities, even a bigger reset in global natural gas prices, so super proud of that. We've had two big setbacks. Obviously, OPEC fought shale and shale won from '14 to '16, very tough downturn in our industry. Also, our success in growing oil and gas production and resetting prices down so much made the returns across the whole sector quite poor actually. Wall Street and investors didn't like the oil and gas industry because heck, we've been a decade of poor returns in our industry. I get that. That's a good reason not to like us.
I'll point out, Liberty had pretty quite strong returns on our capital invested during that 10-year period, but tough for the industry. Now, we piled onto that political pressure that hey, climate change of course, which is a real thing, but this is a crisis and urgent action or we're going to destroy the planet. That of course is total nonsense. But we've ended out adding these barriers to hydrocarbon production. Now, during the booms of the shale years, there was so much spare supply we could do a lot of dumb energy policy, it didn't hurt that much. They just kept doubling down on such activities. Then, once that spare supply disappeared as it did maybe a little more than a year ago, we got the start of this global energy crisis we're in. Really, the only short-term way out of this global energy crisis is more oil and gas production from the US and Canada.
Everywhere else, it's slower moving to change productive capacity. But with shale you've got huge delineated resources. As long as you can build pipelines and get permits, we can ramp up US oil production, US natural gas production, same thing in Canada, and right now, the world desperately needs more oil and gas. But for a few years, shale was written off by investors because it was probably mostly a bad investment but also for ESG concerns. I don't know how much of that was real or how much tied to poor investments, but we do have political headwinds in the US, in Europe and most of the wealthy world, that somehow we're pretty much moving on from hydrocarbons, so it's okay to put barriers in front of it. But those ideas, both of them are just deeply wrong and destructive.
Josh King:
How long does the ramp up take? How quickly can the will change from no fracing at any cost to we need to proceed with where we were pre-2014?
Chris Wright:
With investors, I think their confidence is starting to come back into our industry, still cautiously. Valuations are still low, but the profitability of the companies in our industry has never been higher, so the business case is strong right now. We still have a lot of political and NGO opposition to our industry, not just at the federal level but at the state level and in the federal bureaucracy level as well. I always said I'm all for investing in alternate energy technologies. If something can come and it's cheaper and more reliable and better than hydrocarbons, fantastic. But the last five years, adding that extra leg of that stool of, "let's stand in the way and actively oppose the development of hydrocarbons," that I think is highly destructive. Often people come to me and say, "Boy, you must feel terrible. This administration, wherever it is or this agency is trying to ruin your industry, it must be awful."
My answer to that is, "No, actually this active federal opposition to oil and gas development, while doing nothing to change the demand for oil and gas, it just reduces supply and pushes up prices and it's fantastic for our industry." But less than 1% of the world works in our industry. We shouldn't be worried about our industry. We should worry about the humans of the planet. Artificially driving up oil and gas is producing some winners, maybe I'm one of those, but it produces a world worth of losers. I do think that that energy sobriety, that pendulum is starting to swing back. We quietly approved two more natural gas export terminals out of the United States. The fastest we can build those, the better we can help Europe get off of Russian gas. Maybe even more importantly, the faster we can lower global LNG prices, so nitrogen fertilizer production can come back up.
I think we're in the early stages of a bit of a food crisis, which is just a horrific event, particularly for low-income people, and the only answer to that is lowering global natural gas prices, more seaborne lng, so global fertilizer, of nitrogen fertilizer production can get back up and we can continue the century-long upward trend in crop yields.
Josh King:
Worrying about the humans of the planet, after the break, Chris Wright, CEO of Liberty Energy and I are going to discuss the future of the energy business and why, to paraphrase Mark Twain, reports of hydrocarbon's demise have been greatly exaggerated. That's all coming up right after this.
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Josh King:
Welcome back. Before the break, I was talking to Chris Wright, CEO of Liberty Energy, about the positive ESG impact of energy and his career arc from MIT to the Bakken formation of North Dakota and Montana. Chris, Liberty was founded well before Wall Street was grappling with how to manage human capital and the melding of work and personal lives. What was your vision for changing how fracing companies managed their employees? Why did you think that would be enough to beat out the entrenched competition?
Chris Wright:
My first company, Pinnacle Technologies, again, started 19 years before Liberty Energy. Really, what distinguished us there was culture. We were just a small company and I was very naive, but my belief was if you get great humans that love what they do and love their jobs and therefore they don't leave, you can do special things. I always say the greatest asset of a company by far is the culture that binds great humans together, so that they love their work and can stay and keep moving the ball forward. At Pinnacle, we were mostly technology, engineering. By the end, we had some field operations, and one of the things we noticed was outdoors in field frac crews where the real work happens that makes the world go around. The turnover on frac crews is incredibly high, probably over 50% annual turnover rate. You can't have very fast innovation where every year you're having to replace half or more of the people on the team.
The guiding principle of Liberty was we were going to have a culture where we understood by far and away the most important asset in our company was the people, and in fact, the most important people in our company were those working on location 24/7 running frac fleets. We were going to have, we were going to treat those people as the most important people in the company. We were going to bring a different schedule, better benefits, far more respect and far more listening, getting ideas from the field as opposed to bringing them ideas from where we came. That's the model that launched the company and we haven't veered from it.
Josh King:
Let me sort of admit my ignorance and confess my East Coast bias. You went to MIT, you know what an East Coast bias is all about. You spent time in Berkeley, you know what the attitudes of people are on the coast. When you're working in Montana, North Dakota, Colorado, where do you find the right people who are going to fit into this vision of your culture and how do you retain them?
Chris Wright:
For people working on frac crews, a lot of those people come from rural areas. Rural areas have had a rough 70 or 80 years. As population has moved to cities, jobs and opportunities have moved away. If you're a blue collar worker living in a rural area, you've had a rough several decades. Part of the vision of starting Liberty was to bring a massively better career opportunity to people not just in the oil-producing states, but all around the country. I think we have employees from 46 states, because people that work on our crews work two weeks on and then two weeks off. They make starting early on compensation, about a hundred thousand dollars a year, generous benefits and off two weeks a year.
Maybe you used to be the farm equipment repair guy in southern Illinois and then that industry turned down or you were in construction and construction turned down. Now, you can live where you live in wherever your family is, you can commute and have 12 or 13 days at home every month with your wife and your kids and your family. Now, this isn't a one or two-year gig, where you gut it out and make some money and then go do something else. Our goal was to build a career.
Josh King:
Is your proposition to fly them to and from where they consider their main home to their 13-day shift?
Chris Wright:
As free market guys, instead of saying we'll pay it, we give them a budget. You have X amount per trip, and again, it varies depending upon how far away you live, and then let them use that money however they want. You could spend more than that budget and fly fancy. A lot of them of course are frugal and four of them carpool and then they save the travel money they got, but we want that choice up to the individuals. But we do have a travel stipend for every hitch you're going to work.
Josh King:
We know what life must be like on an oil rig out in the gulf or in the ocean. We know what a military deployment is like. Are you also feeding them three squares a day? How much independence do you have when you're on your 13-day shift?
Chris Wright:
When you're working on that shift, it is hard work. You're on location working 12 hours a day. You may have an hour bus ride from. Typically, there are man camps or places, it's basically temporary housing out there. But what's neat about that, everyone's got their own room and their own bathroom and shower. People eat meals together, there's a gym, there's a weight room, there's a way to watch movies. But people are working 14 hours a day. They tend to come home, have meal among the crew, the crew becomes a family, it's like a company in the army. These guys, it's mostly guys that are working out on the crews. Not all but huge percent. They bond as families. It is that culture of teamwork and camaraderie. We do have about 20 plus percent are military veterans. We hire a bunch of ex-athletes because we want people who are tough and competitive and want to win. It's 24/7.
Think of that in North Dakota when it's 30 below zero when the wind is blowing and it's snowing, we're working, because oil and gas that has to keep, that's a 24/7 operation everywhere, always. It's tough, self-sufficient, competitive people, but they bond together in teams, make a great living, and really, it helps lift up rural communities, not just where the oil and gas development is going, but if we've got seven people working from a small town in Mississippi that hasn't had great job opportunities because people tend to bring their families in, now you've got seven or eight families that have probably more than doubled their income in that community. Maybe the local soccer team is getting new uniforms and better outfits, and so for us, it's a community cultural thing across the board.
Josh King:
If you are ex-military or an ex-athlete and you're hearing this conversation and you're saying, "I wonder where the next chapter in my life is going to take me." There's other stuff I want to get to in our conversation, but I love this digression. How do I say this guy, Chris Wright, make a lot of sense, I want this 13-day shift. How do I even make contact and consider this as an opportunity for myself?
Chris Wright:
The website, libertyfrac.com, FRAC, no K, that came from the antis. Libertyfrac.com and soon libertyenergy.com will also work and there's career opportunities and employment right there. We are always recruiting, we are always hiring, always looking to find great people from across the country and in fact, from around the world. Obviously, we hire a lot of professionals out of engineering school, out of finance or accounting school. The largest percent of our populations working on location, but we employ several hundred engineers. From engineering schools across the US, across Asia, across Europe as well. We are always looking for hard-driving competitive people to join the Liberty family.
Josh King:
Chris, you and I are recording this conversation as the leaves are beginning to change here in the east, the weather's cooling, there's certainly an increased demand for heating. I was up in my parents' house in Boston over the weekend and you could hear the steam kick in from the gas powered furnace downstairs combined with certainly the fallout from the war on Ukraine further going to impact Europe's energy crisis. How did timing play a role in how Russia uses global LNG markets to put further pressure on Ukraine and its allies beyond what we're seeing on the news, the physical invasion?
Chris Wright:
Yeah. Ten years ago, we also had relatively tight oil and gas markets, high oil prices, relatively high natural gas prices. At that time of tight markets, that's a time of great leverage for energy suppliers and probably the greatest user of that leverage has been Vladimir Putin in Russia. In 2014, a time of high oil and high natural gas prices, Russia invaded the Donbas, they seized the Crimea and decided they were going to assert some of their will over Ukraine, and they did it at a time of high leverage. The Crimea went well for them, the Donbas maybe not so much, and then obviously, a lot of saber-rattling. Russia had a dream of reabsorbing Ukraine for quite a long time, but probably since Putin's been in power 22 years now. But then we got to last summer, again very tight natural gas markets.
Huge resources in the United States. US production has grown enormously. We've displaced essentially all imports in the United States, ironically, except where you grew up in Boston, they wouldn't allow the expansion of the pipeline from the mother of all shale gas reserves in Pennsylvania. Boston should have cheap and abundant natural gas, but they would not expand pipeline capacity, so Boston gets its marginal source, as does all of New England of natural gas from imported LNG. We're a natural gas, for the rest of the country it's $6 right now in its units, it's $36 for those living in New England. To me, that's just one of those bad decisions that people sell as a climate change or some other thing. It really isn't about those things at all. But in any case, starting end of last summer, we just did not built enough export capacity out of the United States. Canada, this land of awesome resources, has not built any seaborne LNG export capacity, and so the demand for natural gas, it is the fastest growing source of energy in the world full stop.
Not on a percent basis. Wind and solar are small, percentage-wise, they're growing. Incremental new energy to make the world go round, the fastest growing source of energy in the world is natural gas. But you've got to build infrastructure to move it. It's not as easy to load it onto a ship on a tanker ship. You've got to compress it, super cool it, that is a multi-billion dollar facility to put it on specialized vehicles that carry liquified natural gas in the world. LNG trade's been growing fast but not fast enough for incremental world demand.
Starting last August or September, global LNG prices, well more than doubled, ultimately tripled and quadrupled. That has what slowed down fertilizer production, which got natural gas prices so high again. Your Russia, you're 40% of the continent of Europe's natural gas supply. If natural gas gets cut off into Europe, the lights go out, the factory shut down, people freeze in their houses. Huge leverage. Russia did not cause the energy crisis we're in. They did exploit the energy crisis we are in, so I think to have maximum leverage to invade Ukraine February 24 of this year at a time of very high natural gas prices and high oil prices.
Josh King:
You said that recent events really revealed as much as caused the frailty in the EU's energy policy. What do you think, Chris, is the root of the cause and how deep is the problem?
Chris Wright:
I've been speaking on climate change for 20 years. It's a real phenomenon. It's fascinating. There's awesome science. It's a real global issue we should have some concern about. But the economics and a sober evaluation of it is, it's a very slow-moving issue. It's not causing all the things the media says about it, we can come back to that if we want. But in any case, Europe decided it maybe became a political organizing principle. The Berlin wall had fallen and what's going to animate more top-down, a larger role in the government? Well, we're going to redo the energy system and we're going to redo it to save the planet. Climate change, again, although real really just morphed into a political organizing principle. For 20 years, Europe has spent $800 billion in subsidies to try to drive solar and wind and modern biofuels to transform their energy system.
Germany has been the leader of that effort and total dollars by far and even percent of their economy. But Germany, with this massive effort, they drove the percent of energy they get from hydrocarbons from 81% all the way down to 75%. That's it. Six percentage-point decline. The total decline globally in 30 years has only been three points, but six points in Germany, but the net result was they doubled their electricity prices pre-Russia's invasion of Ukraine, and they made fuel expensive. They had to develop a huge subsidy system to keep their world-class manufacturing industry still building stuff in Germany. The United Kingdom went hellbent decarbonizing, didn't build the huge industrial subsidy system and has been two-thirds de-industrialized the United Kingdom pre-Russia invasion of Ukraine. If you spend a lot of money, in sales point cheaper and cleaner energy sources and instead you get much more expensive energy and you only incrementally change the energy mix, because this is only in the electricity sector, again, that's only 20% of global energy.
In Europe, what Europe ended out doing was all the energy-intensive manufacturing in Europe just left. Instead of something being built in the United Kingdom in a modern factory powered by natural gas, they just import the same product that's made in a coal-powered factory in Vietnam and then diesel powered across the thing. Most of the greenhouse gas emissions they achieved were simply just exported to other locales, and by raising the price of energy and making their electricity grid less stable, they've just made life tougher on the continent, and of course their only or their main reliable source of electricity. With renewables, you have to have something else that when the wind isn't blowing or the sun isn't shining, that brings electricity. Europe has concentrated that into natural gas. That's a reasonable direction to head natural gas, but if you're your largest supplier by far is Russia, well that might not go well.
Josh King:
Yeah. In the first half of our conversation, what struck me was your phrase about worrying about the humans of the planet. I guess, to bring the conversation full circle from where we started, Chris, what is the humanitarian impact of the downward pressure on economic growth? What might be the solution?
Chris Wright:
People often talk about the oil and gas industry or oil and gas and coal or the whole energy industry as some sliver of the economy and the world has gotten more efficient. The percent of the economy that comes from energy is shrinking. That's because we're getting better, we're getting more efficient. Less humans and less cost as a percent of wealth to energize the world, that's real progress. Now it's like, "Oh, they're 5% or 6% of the economy," that's not that big of a deal. The problem is that 5% or 6% of the economy energizes and enables the other 95% of the economy. You can slow down car replacement because the manufacturer of cars just slow down, everyone holds their car a little bit longer. Gucci is struggling at their factory, so luxury goods are going to be less prevalent for a while or more expensive.
Those are hiccups the world can live through, but if you don't have energy, you don't have anything else, you don't have anything else. What I think is important, and maybe our punchline is, energy realism is a precondition for humanism. You have to have a reliable, affordable, as clean as possible energy system to enable everything else in the modern world. You can't make policy decisions that sound good, but the net impact of them is to impoverish people and to displace jobs out.
I lived in California for 19 years. California, aerospace, Hollywood, technology, the most beautiful real estate on the planet, everything going for it. California today has the highest adjusted poverty rate in the nation and this is a cascading series, but it starts with making energy more expensive and less reliable. Low-income people spend a larger percent of their income on energy costs, so you're hitting them the hardest, and they tend to work in energy-intensive industries like agriculture or transportation or trucking or farming. If you make energy expensive, you push all of those jobs to somewhere else. They don't disappear, they just go to places that haven't messed up their energy system.
I think you've got to be very careful when you mess with energy systems and we've got to say, "Hey, if we're promoting this energy technology, usually it's a lie. It's going to be cheaper and cleaner and greener." By putting wind and solar on our electricity grids, everywhere that's done it has driven up the price of electricity and driven down the reliability of the grid. The costs of this are just enormous. To me, we should do everything honestly. If it's going to cost us a trillion dollars of economic damage, but it's going to save us 3 trillion of climate damages or injustices, well hey, let's go together and let's go do it.
But the math doesn't show that at all. Climate change is a slow-moving, gradual process. There's fantastic work done published in every new intergovernmental panel on climate change, on their assessment reports, there's a full economic section. You can see in that work, which of course nobody knows the future, so it's wide range of error bars, but estimates in there of if we don't do anything about climate change by the end of this century, we might lower global per capita incomes somewhere between 0.2% and maybe 3%, 4% or 5% if we have the worst case of positive feedback, upper bound of warming. Five percent economic reduction, that's a big deal, but at the end of this century, that's instead of people being 400% richer, they're only 380% richer. The damage is back and loaded. Right now, there's probably as much positives from the increased fertilization effect of higher CO2, higher crop leads and a greener planet, four or five times more people die of the cold every year than die of the heat.
Right now, the modest warming we've had, the 50% increase in atmospheric CO2, that has some positives, that has some negatives. Maybe the negatives are bigger than the positives, but if so right now it's very modest. Compare that on the other hand to as you open the show with 3 million people dying every year simply because they don't have a propane cook stove. We need to figure out how to get propane cook stoves and lower the cost of propane and easier the distribution of it. Liberty's directly getting into that effort. If we can be part of saving millions of lives, we are all-in. We estimate today from the wells we frac, over a hundred million people have clean cooking fuel from wells that liberty fraced. I'm incredibly proud about that and I want to grow that number as much as possible. Now, we do have a new frac fleet coming out with lower greenhouse gas emissions. I think that's a great thing too, but it's a great thing at just a far, far more modest scale.
Josh King:
You got to have an energy system that works, Chris. You mentioned earlier that growing up, you were told that the world would be maybe out of oil by now, and I remember things like that as well. But presently, no matter what the timeline for that might be, it's believed that there aren't enough raw materials on Earth that will be needed to convert using batteries, everything that we use the internal combustion engine for. Do you think that the problem might be overcome at some point by human ingenuity? As a scientist, as an engineer, do you think that we will find that solution ultimately that allows us to reduce our dependence on fracing and fossil fuels?
Chris Wright:
Oh yeah, yeah. Look, human ingenuity is why we live twice as long today, why we get to have podcasts like this from across a continent. Yes, of course. I don't think climate change is going to have massive negative impacts, because of what you just said. Humans are ingenious. We're going to figure out mitigation efforts to deal with things that do change. We're going to figure out better, cleaner, lower impact ways to produce energy. I went to college to work on nuclear energy. I think nuclear energy has a renaissance. Politically and socially, it's unfortunately dug into a hole, so that may take decades. Thirty, forty years from now, I think you'll see a huge growth in nuclear-powered electricity. From nuclear, you can get process heat, which is the biggest demand for energy of anything globally is process heat, the heat needed to make everything else, like batteries or wind turbines or solar panels.
we need new energy. There's exciting stuff going on in geothermal. I'm fortunate to be working on that as well. We could get electricity just by mining the heat from two miles under our feet. Hydrocarbons, of course, keep getting cleaner. In the United States, coal was our dominant electricity source during all of my youth, 20 years ago it was over 50% of US electricity. Now, natural gas is by far our biggest source of electricity in the United States, twice what coal is. Coal is number two still. I look out my window here in Denver, Colorado. The population of Denver has grown fourfold since I was a young kid here, and the air is massively cleaner. More people, wealthier people driving further miles and going to the mountain, climbing, doing all this great stuff, yet massively cleaner air. That's what human ingenuity and technology does and that's what'll solve our problems, including climate change going forward.
Josh King:
You were a guest recently on the Flipping the Barrel podcast, I think about a year ago, December 2021, where you said that the world didn't run out of horse and buggies, but rather replaced them by better technologies. How is Liberty working with Rolls Royce to upgrade your fracing horse and buggies to be able to tap into natural gas at the source to power your fracing operations?
Chris Wright:
Absolutely. Most heavy equipment in the world today, all those giant sea-going vessels and trains and large trucks, the mining equipment, everything that's made on equipment that has to move is powered by diesel fuel, almost everything. One of the things Liberty's doing, and so our frac fleets are dominantly powered by diesel fuel. Soon after we started this company, we started getting slightly different engines that could burn some natural gas blended in with the diesel. Now, Caterpillar and others have come out with engines where you can blend an even higher percent of natural gas with diesel. But as you just mentioned, we've been working for years with both Caterpillar and Rolls Royce on next generation gas reciprocating engines that run on 100% natural gas and that generate either high power to operate a pump or that generate electricity that can electrically power a pump.
The key thing there is you want to convert as much of that burnt gas into energy. That's the thermal efficiency or how good the engine is. Small engines are 15% efficient. We're going to bring out engines that are over 40% thermal efficiency. That's maybe an overly technical term, but that's actually quite good. What's great about moving from diesel to natural gas, there's four benefits of natural gas. A, the world has massively more natural gas than it does oil, so it's a much more abundant resource. It's a much cheaper resource, economically better. I want to lower the cost of energy every which way we do it. It's cleaner burning. When I say cleaner burning, I mean less particulate matter, less NOx, less pollutants, less precursors to ozone. These are pollutants that impact human health. Part of the Denver is much cleaner because these six EPA criteria pollutants have been reduced by over 80% in my lifetime.
That's cleaner, less pollutants. The fourth category, natural gas beats diesel is lower greenhouse gas emissions. That's also a positive. Natural gas replacing coal in the power sector or diesel in the transportation sector is the single biggest force of decarbonization around the world today. For US, over 60% of our rather large greenhouse gas emissions reduction have come from one thing and it's just the increased role of natural gas in our energy sector. Yes, we're trying to bring that to mobile systems, to frac powering in Liberty as well. Through our digifrac fleets that are coming out starting next month, quite excited about that, multi-year effort.
Josh King:
As we begin to wrap up our conversation, Chris, Liberty has seen multiples of growth both organically and through acquisition. As you look forward, whether it's the fleets or your equipment you're working with CAT and others, where do you see the most open runway for growth moving forward? What impact do you think an actual or perceived recession, whether it comes in 6 months or 12 months, might have on your business?
Chris Wright:
The economic signs are certainly out there of slowing global economic growth. We started a very rapid rebound from the pandemic, but now the rate of increase in energy use globally is definitely slowing. China is uncertain, but economic growth there is from 10% a year to probably barely above 0% a year. India is slowing a little bit. US economic growth still looks positive. We don't look to be going in a recession yet, but we're certainly teetering on the edge. If the world has a coordinated recession, that's about the only thing that will ever bring down the demand for oil and natural gas. If that happens in the next few months, that should lead to a little bit of a softening in commodity prizes and probably slows down industry activity a little bit in the industry we're in. Probably not a lot though because global markets for oil and natural gas are very tight right now.
In fact, I worry a little bit less about that one than the opposite scenario. If either global growth expands back at the clip it was, or these European sanctions on seaborne Russian oil bite and we lose 2 million barrels a day of Russian oil exports, if we either get reasonable economic growth or lose additional supply sources, we could be back at risk of $150 or $200 oil and further upward pressure on natural gas. I hope we don't see either scenario, particularly the latter, because it is destructive for the economy, it's destructive for the people of the world. Our most likely scenario is to muddle through where we are right now, which is oil prices that are quite profitable for our customers, where industry conditions that are quite profitable for liberty in the service sector. We have a healthy industry, but it's not a massive roadblock to economic progress in the world.
I hope we keep muddling through. Ultimately, economic growth globally will pick up pace and that additional natural gas and oil's going to have to come from somewhere. US and Canada are probably the biggest suppliers of that, but right now, we probably don't need a lot of growth. We're probably in a muddle through economic condition right now. Liberty's goals are to keep getting better at we do. Grow our competitive advantage versus our competitors, deepen our partnerships, which is American and Canadian oil and gas producers, figure out how to do things more efficiently, safer, lower cost, and ultimately, some drive to automation, which also helps operations become safer and cheaper.
Josh King:
Well, Chris, if you and I were to get back inside the Ice House together in eight years in 2030, what do you think the first topic we'd want to discuss with you is?
Chris Wright:
I don't know. I've recently said one of my goals, I've always pushed for a goal. I'm not for net zero 2050 and I'm adamantly not because the human destructiveness of raising energy prices and the trillions of dollars of mal-investments we've done so far, what is my bigger picture goal? My big picture goal, and it's been this way since I was a kid, but I've never named it this, it's net zero poverty by 2050. We've had enormous 30 years of people being lifted out of poverty. That great World War II, post economic World War II growth boom that spread out in Europe and Asia has now hit lower income countries. We've been seeing a tremendous rise out of poverty in the last 20 or 30 years. The biggest headwind to that is higher energy prices, higher food prices, and the only way you get those is bad energy policies.
At the COP conference in Glasgow last year, the last climate conference, we had 20 of the world's countries proudly proclaim that they were not going to support hydrocarbon lending in the developing world. I just cringe when I hear that. Two and a half billion people cooking every day with wood, dung and grass inside their huts, 3 million of them dying every year. That's a fixable problem. We've been making progress on it. I hope in 2030, those arrogant, virtue-signaling, wealthy world, energy-clueless politicians are going in a different direction by then. I think they will by 2030. I think we will see huge progress and more people out of poverty. I think we'll see hundreds of millions of people, more people with clean cooking fuel. I think we'll see electricity spread in more of the poor country of the world, a billion people with no electricity, a billion people with intermittent poor quality electricity.
I think by 2030, we'll see a lot of progress in that. That'll be private investments, insensibly-governed countries, it won't be everywhere. Of course, politicians will still be politicians. They'll still say silly things of all kinds and they'll still do destructive policies. That's as old as politics. But I think the energy dialogue could be more sober, could be more productive in 2030, and I think our progress in lifting people out of poverty, I think when we look back eight years from now, Josh, we're going to say half a billion, maybe a billion people, additional people have been lifted out of extreme poverty in the last eight years. Let's go get the last billion and a half to 2 billion remaining.
Josh King:
Well, you and I have a date in eight years, Chris. We're going to come back and take our temperature, maybe we'll do it well before that. In the meantime, it's middle of October in a couple of weeks, maybe I'll see you out at Copper Mountain or Veil or Aspen and we'll take some runs together.
Chris Wright:
Look forward to it, Josh. Really enjoyed it. Take care.
Josh King:
Thanks so much for joining us. That's our conversation for this week. Our guest was Chris Wright, the chairman and CEO of Liberty Energy. That's NYSE ticker symbol LBRT. If you like what you heard, please rate us on iTunes, so other folks know where to find us. If you've got a comment or a question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us @ICEHousePodcast. Our show is produced by Pete Ash with production assistance and engineering from Ian Wolf. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you, next.
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