Gary Cohn, President and COO of Goldman Sachs and Al Monaco, CEO of Endbridge, spoke with Bloomberg Television’s Alix Steel today about efforts to boost U.S. energy investment and the impact on economic development. Cohn also discusses House Majority leader Eric Cantor’s loss to Tea Party challenger David Brat in yesterday’s Virginia primary.
On Eric Cantor’s defeat, Gary Cohn said: “I think Eric has been a great leader. He’s been a great public servant. And I think we’ve all enjoyed having Eric in the Congress. I think it more in essence makes a statement to some degree about what’s going on in Washington, and can you go to Washington and try and be a compromiser and try to get things done and be a centrist and get re-elected?”
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When asked what encourages capital investment in an environment that is so uncertain, Gary Cohn said: “You need certainty. You need to understand how you’re going to get paid off. Yes, you’re willing on take on risks, nothing is guaranteed, but you need to have regulatory certainty, you need to have environmental certainty, you need to have supply certainty.”
Monaco added to this: “The reason why we all search for more certainty is because that will reduce our cost to capital and make us more competitive in getting the crude oil and natural gas and other products to market. So that’s really the linchpin of all of this, is reducing the uncertainty to make us more competitive. I think we’re getting there. We’re making more progress.”
Gary Cohn: More Certainty Needed for Energy Investment
ALIX STEEL: I’m joined by very special guest Gary Cohn, like you said, as well as Al Monaco, CEO of Enbridge. Gentlement, great to have you here.
First off, I just got to hit on the news of the day for you, Gary. Eric Cantor’s defeat in the Virginia primary, I mean, what does it say about Wall Street? What does that mean to businesses?
Gary Cohn: I’m not sure it means anything specific to businesses. I think Eric has been a great leader. He’s been a great public servant. And I think we’ve all enjoyed having Eric in the Congress. I think it more in essence makes a statement to some degree about what’s going on in Washington, and can you go to Washington and try and be a compromiser and try to get things done and be a centrist and get re-elected?
Now, I think for financial markets, for Main Street and Wall Street, that’s an issue that we’re dealing with today more than we were dealing with yesterday at this time
STEEL: And with Goldman being one of Cantor’s top contributors, I mean, can we take anything away from it as an anti-Wall Street vote in Virginia? What do you think?
Gary Cohn: I would have no idea. My concern, as I said, is much more about Eric being a compromiser. I mean, Eric stood out on some of the tough issues. He stood out on immigration. He was willing to talk about immigration. He was willing to talk about tax reform. He was willing to talk about the environment.
He was willing to talk about sticky issues that were sticky for Republicans. They were sticky for Democrats. He was willing to try and create a coalition of believers, trying to create compromise, understanding that he couldn’t get everything, he couldn’t get everything done, but he was trying to move forward and create progress.
And I think that’s the real important takeaway from this.
STEEL: Does this make your business harder?
Gary Cohn: I don’t know. I don’t think so.
STEEL: Maybe too soon to say?
Gary Cohn: Yes, too soon to say.
STEEL: All right, well, thank you for your thoughts, Gary. I really appreciate it.
So now from D.C. to energy, which actually probably isn’t that separate when you take a look at it. So the idea here of the conference is really how to marry economic interests, business interests, as well as regulatory interests, and environmental interests — very difficult to do. You gentlemen were both on a panel. I want to get your take on the biggest stand out. What are people talking about, Al?
AL MONACO: You know, first of all, I’m glad you asked Gary that I question about U.S. politics. I think he handled it much better than I would.
STEEL: What, as a Canadian, what do you mean?
MONACO: Well, we have some views on it, that’s for sure.
I think, really, it’s the — this realization in the energy business that we do have to come to grips with the fact that we need energy. It’s certainly critical to our economic well-being. The question is, how do we develop it in a sustainable way? And I think that’s really what you heard on the panel. You heard a couple of different views on how to get there.
I think that’s our challenge. We have the supply. We’ve got great capital and technology skills to develop it. The question is how do we all put it together now and make it work for economic development?
STEEL: And the big question really being what encourages capital investment? I mean, Gary, what’s going to make companies put money to work in an environment that is so uncertain?
Gary Cohn: So that was one of the main themes of the panel. It was uncertainty. When people are investing capital, especially in the energy sector where the payoffs are multiple decades, when you invest a lot of capital in the energy sector, you get paid off over 10, 20, 30 years. So you need certainty. You need to understand how you’re going to get paid off. Yes, you’re willing on take on risks, nothing is guaranteed, but you need to have regulatory certainty, you need to have environmental certainty, you need to have supply certainty. And the panel spent a lot of time talking about how can we be more certain about these issues and can we remove these variables from the equation?
STEEL: I think we can. I mean, Al, you really have your boots on the ground in a way, right? You’re responsible for building out the infrastructure in (INAUDIBLE). Currently you have Northern Gateway is waiting for approval in Canada. That would bring oil from Alberta to British Columbia to be shipped off, presumably, to Asia. What do you need to see to feel better?
MONACO: You know, I’m going to pick up on what Gary said around certainty. And the reason why we all search for more certainty is because that will reduce our cost to capital and make us more competitive in getting the crude oil and natural gas and other products to market.
So that’s really the linchpin of all of this, is reducing the uncertainty to make us more competitive. I think we’re getting there. We’re making more progress. On the project you’re preferring to, Gateway, I think there we’ve also made some great progress. And what we emphasized in the panel was you really need to take a different approach today in order to engage communities and make sure we’re addressing their concerns.
STEEL: Can you imagine just calling up a guy and saying, hey, I’m going to put a pipeline through your land? And then send a piece of paper to the regulator? I mean, describe how much harder it is this time around.
MONACO: It’s not that simple, but, in many ways, the way the industry used to do business was similar to that. Because we were driven by convincing people about the economic benefits first.
Well, in this environment, what we need to do is make sure that they’re convinced about the safety and environmental protection of your project. Because if you don’t get that part right, they’re not going to trust you, and the economic benefits aren’t going to matter.
STEEL: And I was interested, particularly, Gary, with the question that you asked about exports and should we be exporting oil and natural gas? Or my spinoff question is should we be igniting domestic demand here in Canada, as well as the U.S., instead?
Gary Cohn: That’s what I was trying to spur on the panel. The question is can we create domestic consumption? And this deals with the certainty and it deals with the regulation issue.
The tragedy of all this to me would be is if we create this huge windfall of cheap energy in the United States and the only thing we can do with it is export it to another country that will consume it and use it to make markets and they’ll take those products and export them back into the United States, and we as U.S. consumers will buy those finished products. We would have lost the opportunity to create all those jobs and manufacturing those products. And I think this is the enormity opportunity that sits in front of us.
The final question I ask the panel at the end of the session was, do you believe 10 years from now North America will reindustrialize itself? All the panelists said yes, with some —
STEEL: But — right.
Gary Cohn: — with some caveats. And that to me is the big issue. Can we remove some of those obstacles, that we can take this huge competitive advantage we have, $3 or $4 or $5 dollar natural gas versus $13 or $14 natural gas everywhere else in the world, and use it to manufacture?
STEEL: At the end of the day, do we really need someone to say, yes, go on, Keystone. Yes, go on Gateway. Or is it more subtle in order to get clarity?
MONACO: Let me first — I got to jump in on this export question.
STEEL: Yes, please.
MONACO: Because I may have just a slightly different view. You know, at the end of the day, you need the right price signals to encourage investment. And if you look at North America right now, it’s an island. Because it has virtually no connectivity to the globe.
And I think those price signals are extremely important, because we are living in a high-cost environment in North America for producing our oil and gas. So we need to have the right price signals. We ened global prices in order to encourage production and keep investment at the level it’s been at.
STEEL: Does that cut off demand though? Can that cut off demand if prices go too high if we’re exporting too much?
MONACO: If you look at the studies for natural gas, for example, when they started approving the export project, it was very clear that the impact on natural gas prices were de minimis. And I think the bottom line is we have a tremendous reserve potential here. We have lots of reserves. So I don’t think we’re going to get to a point where we export so much product that it’s going to have an uncompetitive impact on the rest of the economy.
STEEL: And this is a big week for you over the next few days, right? June 17 should be when you hear about the Gateway pipeline, if that’s approved. How do you feel about it? Any word do you think it’s going to have?
MONACO: We’re looking forward to the decision. We can’t speculate. We don’t know what the federal government is going say. I do know one thing, though. We have put our best foot forward. We’ve done all we can. We have more to do, mind you, if the approval does come. We’re going to spend many more time engaging with FirstNnations and the community. That will be a key focus area. But certainly, from a safety and environmental perspective, even though we have more work to do, I think we’ve put a real nice foot forward on this.
STEEL: Good luck. Fingers crossed for you.
Gary Cohn, last question to you. At what point, though, if we don’t get the kind of clarity we’re looking for from the regulatory environment do we just stop the shale revolution we’ve been seeing? The IEA says we’ll be done with oil 10 years.
Gary Cohn: I don’t think we’ll stop. As Al points out, we’re part of a global marketplace. And that’s the whole equation.
Right now, we produce cheap natural gas. There’s a global coal market out there. We’re part of the global coal market. We’re part of the global oil market. Oil in the United States is part of the oil market; oil in North America is the same thing.
So we’re going to continue to be part of that market. And being able to export is what’s going to keep us producing. If we can’t consume here in the United States, we’re going to export. We’re still creating jobs and we’re still creating economic growth by creating the oil, by creating the gassification (ph) plans, by creating the liquefaction plans, that’s still an industry.
We had Governor Jindal on our panel, and you see what he’s done in Louisiana. One in seven Lousianans worked in the energy industry, energy-related industry. A lot of that has to deal with manufacturing, but a lot deals with exports. He’s a big export state.
STEEL: Sure, and you can export products. So the refineries are the biggest switch (ph) there too.
Gary Cohn: You can export products, you can export refined products. So, look, we’re going to continue to produce gas in this country. We’ve started down this path. We’re going to continue to go down this path. We are part of the world economy. We’re part of the world commodity cycle.
STEEL: All right, gentlemen, thank you so much. Really appreciate your time today. Gary Cohn of Goldman Sachs as well as Al Monaco, CEO of Enbridge. Good luck on the decision coming down the pipeline in the next week, Al.
MONACO: Thank you and thanks for having us.
Gary Cohn: And thank you for being at our energy summit.
STEEL: I love it. I’m a dork. I’m digging it. All right, Erik, I’ll send it back to you in the studio.