[00:02] Bryan Hyde: Welcome to the Powering America Podcast. I'm Brian Hyde, and today I'm joined by Kit Pfeiffer. He is Senior Vice President of Commercial at X2 Resources. Kit, welcome to the show. Take a moment here to tell us a little bit about who you are and what you do. [00:16] Kit Pfeiffer: Yeah, Brian, thanks for having me. It's great to be here. So I'm a Coloradan, born and raised. I don't know how many generations. Um, went to school for engineering and economics and have Spent my whole career in the energy industry working from giant majors and national oil companies all the way down to tiny startup private equity upstream frackers. So have seen a wide breadth of the industry, upstream, midstream, downstream, and I enjoy just talking about it and educating people on how it all works. [00:44] Bryan Hyde: Well, it's a timely subject, and I say that because I know of very few people who don't have some kind of a grumble or question in their mind as they're fueling up their vehicles or paying their, you know, heating or cooling bills. Energy has been expensive and, and, you know, we all kind of feel like we've taken a hit. Maybe we could start by, by having you give us some perspective in terms of, you know, the hostilities over in the Persian Gulf have impacted energy. What, what kind of context can you give us to understand about, about how that has impacted everyday Americans? [01:20] Kit Pfeiffer: Yeah, you're exactly right. Energy is the fundamental input to the entire economy. So whatever happens in the industry, affects everything else in our society. And we see that every day when we drive past the pump. It's really the only thing in our lives that we see the price 12 times a day as we drive past the different gas stations. So it's always at the front of our mind. You know, when the Iran War sparked off and the Strait of Hormuz was closed, it was the largest interruption in energy flows in history by quite a bit, far larger than the 1970s oil crises. And that's because about 20 to 25% of total global hydrocarbons, oil, gas, oil and gas, NGLs, condensates flow through the strait. And so shutting that off created a giant gap in the global supplies. And that gap had to be met from inventories or had to be destroyed in demand. And that raises prices. Now in the United States, we were really insulated, luckily because of the success of the fracking revolution. So in 2008, fracking begins. Our production has just exploded since then. And we're now the largest producer of oil and gas in the world. And so that means that when these global supplies are shut off, we still have everything we need to consume, but these are global markets. And so when prices rise across the globe, they also rise at our docks where we would ship them to the rest of the world. And that flows back to consumers throughout the continent, regardless of how landlocked you are. So even in the Rocky Mountains, you saw prices increase just as much as you did on the Gulf Coast. And that's really because this lack of supply. We did large releases of strategic reserves. A lot of the world did that. But that is really just a, a Band-Aid, you know, that's a stock trying to solve a flow problem and it just doesn't bridge the gap forever. So prices are certainly up, but they would've been a lot worse. And frankly, the president probably could not have even undertaken this action if it weren't for the large volumes from fracking that America has grown to. [03:21] Bryan Hyde: I want to feel relieved, but I'm still kind of sore every time I reach for my wallet. But hopefully you understand. Because we don't get so much of our energy from the Middle East, help me better understand why, why again does it, does it, why do we see our gas prices go up? Is it simply because so much of the world is consuming what the U.S. is producing? [03:44] Kit Pfeiffer: Yeah, it really has to do with the interconnection of the supply chains. So if you look at natural gas, for example, when the war started, LNG, liquefied natural gas. Qatar is one of the largest suppliers in the world, and those supplies got shut off. So international gas prices rose pretty dramatically, but they did not rise in North America. You know, our gas prices have stayed right at about $3 in MMBtu regardless of what happened in the war. And that's because we're, we're restricted on how much gas we can export with our own LNG capacity. We are not restricted though on how much oil we can export. I mean, we are at some point, right? There is a physical limit, but the market can pull enough from our North American oil terminals that the prices become interconnected. You know, a refinery is choosing, do I sell to the international market or do I sell to the domestic market? And because it's able to make that choice and it's not physically constrained, the prices then have to equilibrate. This is why you saw early on in the conflict, there was some discussion about doing export restrictions out of the United States for crude oil and products. And that has happened elsewhere in the world. China did quite a bit of them. And that definitely tamps down domestic prices, but it destroys those refineries and their economics 'cause they can no longer sell and they still have to buy the expensive crude oil. So it's good that the administration did not put those on. It's good that we haven't done that. And theoretically that's off the table 'cause it really would destroy the industry, that those create all sorts of different shortages. [05:16] Bryan Hyde: Mm-hmm. [05:17] Kit Pfeiffer: But because we have enough export capacity, our prices are interconnected with the rest of the world on crude and products like gasoline and diesel. [05:25] Bryan Hyde: So it, it sounds, and this is just going off the, what, what I've heard recently in the news, the, that an agreement's been reached. The Strait of Hormuz is open again. Are, are we likely to see a shift downward in our, our energy prices, or does that take a while to, to ripple back through the economy? [05:42] Kit Pfeiffer: So some things go up and down really fast, right? So crude oil, gasoline, diesel, some of these things are pretty fast up and down, and We've even seen in the few days since this agreement was reached that gasoline prices have fallen 20% on the wholesale market, which means consumers at the pump could probably start to see mid-$3, maybe even low $3 a gallon if, if everything continues as planned. Some other products, you know, your petrochemicals, your motor oil, some of these longer supply chains, those will have, you know, months to have the prices kind of come through. And then some things like food and fertilizer and these much, much longer implications. Those are still to come. We still haven't really seen the full brunt of this conflict yet in some of those markets. But that all premises that, that the strait opens today and is fully open. We've seen even in the hours since the agreement was signed that some of these terms, especially the entanglement of Lebanon, and I suspect it'll happen again with the kind of sanctions relief and money flows back to Iran. [06:46] Bryan Hyde: Mm-hmm. [06:46] Kit Pfeiffer: These clauses are open to interpretation, and, and Iran is very much incentivized to limit the flows through the strait of other people while having as much of their oil flow as possible, right? It increases the prices and then they get their volume. So I very much expect to see a very convoluted and probably restricted supply of oil, likely even during this 60-day negotiation timeframe. And if there's a return to open hostilities, Then you could see an even larger problem. As I mentioned, inventories are what we're all really watching. And if we continue on this pace of dramatic inventory declines, we could even see prices go back up over the summer if we don't see these stocks start to be replenished. We entered the war with a giant oil glut, so it's still possible that we could go down to very low prices if that glut reestablishes, but that's gonna take consistent flows out of the Gulf, and we just haven't seen that yet. [07:43] Bryan Hyde: And let's talk a little bit about Venezuela because of the— I know that they're one of the major energy producers in this hemisphere. Um, you know, with the removal of Maduro as, as the leader, um, how does that affect us? The, the Trump administration's actions in Venezuela? [07:59] Kit Pfeiffer: Yeah, the global oil market is fungible, right? So an increase in production anywhere in the world helps lower prices everywhere. Now Venezuela is a large producer relative to a lot of other countries. They're about a tenth of the size of us in the United States. They're about a quarter the size of Mexico or of Canada. So they're not that big. A— even a doubling of Venezuelan production, you shouldn't expect to see $2 gasoline just from a scale. And also their production is very, very heavy. Most of it is very heavy, requires a lot of refining even before you get crude oil, which is kind of a crazy concept. And that takes a lot of capital to invest. And so it's, it's unlikely that we'll see a giant surge of growth from Venezuela. They could certainly add even up to 1 million barrels a day, something like 1% of global demand over maybe the next 12 months or so. So it helps, it definitely helps keep prices down, but it is not nearly as dramatic as what was lost in Hormuz or how impactful the entire Middle East is. [09:04] Bryan Hyde: And let's pivot to domestic energy production. Ideally, I mean, I've heard people talk for years and I want to see the US as independent as it can be in terms of producing the energy that we need. What's it like? What's happening on the state level either for or, you know, against the development of new energy resources? [09:26] Kit Pfeiffer: Yeah, I mean, the fracking revolution is a fascinating story, right? Because it starts in 2008 and you see quickly the industry learns the science and then learns how much shale there is throughout North America, all the way from, you know, the northern parts of Canada, all the way down to the southern Eagle Ford in Texas. And so there's this explosion of growth and production, and really very, very little could be done from an above-ground policy regulation standpoint that would stop that because the economics were just so strong that any incremental costs weren't enough to burden and really block total growth. But now that the shale revolution has entered its— maybe, maybe you'd call it its final phase in North America, where the core inventory is drilled up, if it hasn't been drilled, it's owned by just a handful of large players. And everybody's having to look further and further afield to the periphery of these basins or to, you know, new exploration. The above-ground considerations— policy, regulation, land, water— Really makes a huge difference in the ability of producers to access more resources. You gotta remember every oil and gas well is constantly declining and has to be replaced every year just to maintain flat volumes. And so as a lot of states have made it a lot harder to access and grow, the federal government waffles back and forth every 4 years, right? We see very dramatic changes back and forth. That kind of bipolar nature of regulation makes it really hard to enter some of these areas where there might be remaining resources, things like Colorado and even Alaska, versus some places where more, more standard like Texas. But if Texas is running out, there is nowhere to go. And so the regulatory environment makes a huge difference on where we go from here as far as energy independence. [11:22] Bryan Hyde: And I guess I'd like a little clarification too. You mentioned that shale is just a massive resource. Are there other big resources too? I'm thinking about natural gas. It seems like I've heard we have some amazing natural gas fields within the US. How does that compare, for instance, to the shale resources available? [11:43] Kit Pfeiffer: Yeah, so shale is both. Shale is oil and shale is gas. The shale revolution started in gas and then transitioned to oil. There's still a lot of gas resources left in North America. I mean, You— we make a ton of gas and a lot of it is available at very cheap prices. I mean, this is one of the things that really will set America ahead potentially of the rest of the world, especially in the AI and power race. If we can do it responsibly and smartly, is we just have a lot of gas. We can power those assets for a long time to come, but that comes with its own challenges. I mean, the reason that it hasn't been developed yet is because our gas prices are so cheap that some of these basins just aren't profitable, you know, whether that's the Haynesville or the San Juan in New Mexico, or the Marcellus has really carried as, as far as like gas assets go up in Pennsylvania. Because mostly what happens over the last 20 years is as our oil growth has, has been so dramatic, gas comes alongside that. The Permian Basin is the largest gas basin in the country, and it's— we're drilling for oil and we're making gas as a byproduct. As oil production slows down, we'll need to purposely find more gas assets, and that takes more risk and more above ground and smart policies to make it happen. [13:07] Bryan Hyde: And I'm sorry to go back this— I feel like I'm saying, now let's go back to caveman times. What about coal? I know that, you know, we sit on, you know, one of the richest seams of coal. I think it's now in the Grand Staircase-Escalante Monument, but Is coal still viable as a fossil fuel, or does it require so much refining that it's just much better to go with, you know, natural gas and oil? [13:34] Kit Pfeiffer: Yeah, as with all energy decisions, it really depends. You know, every resource has its best use case in its best places. And so one thing that we cannot do as a, you know, even in a given state, but certainly as a country, is say anything is all good or anything is all bad. It really depends on where it is, what the costs to produce it are, how clean we can do it, how reliable it is. And so there's absolutely a use case for coal, especially in some of these established supply chains. You know, the West still burns quite a bit of coal because it has a lot of coal, right? Wyoming. You mentioned Utah. Some of these places have a lot of cheap, abundant, reliable, and relatively clean coal resources, and they have power plants that were built to run that. You know, one of the crazy things that's happening in Colorado is the Comanche plant in Pueblo, the newest, shiniest, biggest thing in the Xcel Energy portfolio. It's only 16 years old. It can barely even drive, and it's being slated to shut down decades before its lifetime. At the same time, Xcel Energy is asking for the largest rate increase in Colorado history. Those two just don't make sense, right? We, we need to be having smart, thoughtful conversations about how do we produce what we have abundantly and cheaply while still trying to meet any sort of transition targets that we might have as a society or a state. [15:00] Bryan Hyde: As far as the states go, I mean, I think of Texas when I think of oil and Colorado though, it sounds like has, has really kind of let out in a lot of ways. Can you tell me about some of the things that are happening energy policy-wise in that state? [15:15] Kit Pfeiffer: Yeah, Colorado's had a fascinating history. You know, Colorado's produced oil and gas for decades and decades, as has most of the West. But the Denver-Julesburg Basin, the DJ Basin, is the big heart of Colorado oil and gas in Weld County. And it joined the shale revolution kind of right behind the Bakken in North Dakota. It's a great asset. It's been drilled very prolifically. Grown quite a bit. But the state has always had a love-hate relationship with it. Of course, you know, there's a lot of revenue, a lot of state taxes that come in from the production, but the state has often tried to shut it down. One of the funniest examples— it's sad for the state— but there was a proposal to do setbacks, which is how far you can drill away from buildings. And there was a ballot initiative that said 2,000 feet setbacks. And the population said, no, that's too stringent. That doesn't make sense. We don't like that. Well, 6 months later, the state legislature passed a 2,500 step back, even larger and more onerous than the failed ballot initiative. [16:19] Bryan Hyde: Right. [16:19] Kit Pfeiffer: So there's a lot of tension between the state and the population, and we're gonna see that play out again, likely in November. There's the Public Utility Commission in Colorado has set a date for ending all natural gas consumption for heating and electricity, which most people hate. They love that their house is heated independently of their electricity system. They love cooking with gas. There's a reason we call it cooking with gas. [16:44] Bryan Hyde: Yeah. [16:45] Kit Pfeiffer: And the idea of that being taken away, that choice being removed from them, doesn't sit well with a lot of Coloradans. So there's likely to be another ballot initiative this November, this time a constitutional amendment constitutional amendment to enshrine that right, not only to consume natural gas, but also to produce it. And so that's when I say, you know, what's really hard for producers and consumers alike, especially in this growing demand season, not only for data centers, but for populations and for air conditioning and for electrification at large. It's really hard when we have this bipolar give and take up one, minus one, one step forward, one step back. Regulatory and policy environment. [17:24] Bryan Hyde: No, that makes sense. I, I have to ask, what, what's the justification behind wanting to, to end using natural gas for heating and, and for cooking? [17:34] Kit Pfeiffer: Yeah, it's a, it's a climate change goal and an emissions regulation, right? It's the idea that we can do better with things, predominantly heat pumps for heating. Now, heat pumps, like I said, There's nothing that's all good and all bad. Heat pumps can work really well in certain places. They have a hard time working in extremes of temperatures, which if you've ever lived in the West, you know, we get really hot and we get really cold because we're so far from the coasts. And they're also expensive, right? These are large capital, you know, they're basically a super AC unit. So imagine having to go to every home in the state and have to replace your furnace with an extra expensive AC unit. And then the other big problem is that that puts a lot of additional load on the electricity system. And in Colorado, for instance, uh, Xcel Energy is now doing rolling brownouts and blackouts throughout portions of the state to protect against wildfires and high wind environments. And the only reason they have to do that is because of how poor our electricity infrastructure is in those portions of the state. So the idea of adding a large amount of additional load for heating for residential and commercial when we don't even have the transmission to handle what we have today, it's a recipe for disaster. [18:52] Bryan Hyde: For people who want to find out more, is there a website where you want to direct them to, to dig in a little bit deeper? [19:00] Kit Pfeiffer: Yeah, there's actually— there's a lot of resources. There's a lot of things out there. I mean, I would say especially on the natural gas initiative. Advance Colorado has done the groundwork of getting the ballots on. There'll be a lot more to come. The Energy Freedom Alliance of the Rockies is getting stood up to do a lot of these things and advocate for choice and freedom within our own homes and then within our own state and societies. But it's really to stay on the ground and to be paying attention to your electricity bills, to your gas prices, and asking yourself and your policymakers, what is a rational, smart path forward? Nothing is all good. Nothing is all bad. We can do this responsibly. We can do this together. It doesn't have to be a war. It just has to work. [19:45] Bryan Hyde: Again, we're talking with Kit Pfeiffer. He is Senior Vice President of Commercial at X2 Resources. Kit, thank you so much for joining us today on the Powering America podcast. [19:57] Kit Pfeiffer: No, thank you for having me, Brian.