In this week’s episode, host Daniel Raimi talks with Bobby Tudor, the chair of the Houston Energy Transition Initiative and the founder and former CEO of the Houston-based investment and merchant bank Tudor, Pickering, Holt & Co. In his new role with the Houston Energy Transition Initiative, Tudor focuses on how Houston can take the lead in the energy transition away from fossil fuels. He and Raimi talk about the history of Houston, how oil and gas came to play such a big part in the city’s economy, the strengths that the current energy incumbents can leverage in a transition to net-zero emissions, what the city’s economy might look like in 20 or 30 years, and what roadblocks could stand in the way.
Listen to the Podcast
- Has the Houston economy diversified beyond oil and gas?: “I think a myth that we’ve told ourselves in Houston in the past decade is that we have meaningfully diversified our economy here, when that’s probably less true than we would like to believe … I also think you have to dig behind those numbers and try to understand what diversification means, and what’s the difference between a direct job and an induced job, for example. And in greater Houston, in our region, approximately 40 percent of our jobs are either direct or induced energy industry jobs. That’s a very, very high percentage by any measure, even if you compare it to entertainment in Los Angeles, or automobiles in Detroit, or finance in New York City.” (12:58)
- Entrepreneurial opportunities in the energy transition: “We also like our entrepreneurial culture. Houston was, as I mentioned before, a real estate deal in the beginning by two New York real estate developers who saw commercial opportunity. And that, at the end of the day, is what Houston is really all about. We are very good at looking at money on the ground and deciding we want to pick it up, and to some degree we’re looking at the energy transition that way. We think there’s enormous commercial opportunity around the transition, we think we are well positioned to capture it, and we intend to go after it. So, for a lot of reasons, we really do believe that Houston is extraordinarily well positioned.” (18:39)
- Job growth in the energy transition: “We just don’t see a bunch of job growth associated with the incumbent business. We see real consolidation among the companies; we don’t see a ton of new company formation in that sector. And so, as we’re looking for growth, we need to be looking in other places. One obvious other place is in energy transition–related companies, where we do think there will be a ton of new company formation, we do think there will be a lot of fundamental demand growth in the business, and we want to make sure that we’re well positioned to take advantage of that. We think that the jobs that we might lose due to ongoing efficiency gains in the incumbent industry can be more than offset by jobs that we will gain via growth in transition-related companies.” (21:34)
Top of the Stack
- How to Avoid a Climate Disaster by Bill Gates
- “Once-Oil-Dependent Texas Economy to Keep Growing as Renewable Energy Expands” by Christopher Slijk and Keith R. Phillips
The Full Transcript
Daniel Raimi: Hello, and welcome to Resources Radio, a weekly podcast from Resources for the Future. I'm your host, Daniel Raimi.
Today, we talk with Bobby Tudor, founder and former CEO of Tudor, Pickering, Holt & Co. and current chair of the Houston Energy Transition Initiative. In his new role, Bobby is focused on how Houston can take the lead in the energy transition. We'll talk about the history of Houston, how oil and gas came to play such a big part in its economy, and the strengths that today's energy incumbents can leverage in a transition to net zero. I'll also ask Bobby to imagine what the city's economy might look like in 20 or 30 years, and what roadblocks could stand in the way. Stay with us.
Okay, Bobby Tudor, welcome to Resources Radio. It's great to have you on.
Bobby Tudor: Thank you, Daniel, for having me. It's a pleasure to be here.
Daniel Raimi: Bobby, we're going to talk today about the city of Houston and Houston's role in the energy transition. But before we do that, we always ask our guests how they got interested in working in this field in the first place. So, what drew you into energy—either as a kid or later in life?
Bobby Tudor: Well, I think, like many people who end up in any industry, it was a bit accidental. I did grow up in Louisiana, really during the height of the last previous boom in the US oil and gas business, and while my father was not involved in the industry, and I wasn't necessarily directly exposed, it was all around me. So, for example, many of my high school classmates took jobs after graduation in the offshore oil and gas business, where you go and work offshore in the Gulf of Mexico for two weeks, and then you come back home for two weeks. You could make more money doing that than you could with most jobs that you got with a college degree in Louisiana in 1978, which is when I graduated from high school.
So, I grew up in the boom times of the US oil and gas business, and then I came to Rice University in Houston for college, and I was there from 1978 to '82, and it was really only the very end of that that that oil and gas boom had crested and started to turn downward. So, the oil and gas world was very much a part of my youth, if you will.
I ended up at Goldman Sachs in the corporate finance department, and, as often happens when they're looking to staff a young associate on a transaction, they think, "Well, who do we know from that part of the country?" And I was from Louisiana, as I mentioned, and had gone to Rice in Houston, and it was an oil and gas transaction, and this was before they had a lot of specialization in the energy finance world, and they said, "Well, we have this new young kid from Texas. Let's put him on it." So, I got staffed on my first oil and gas deal and spent the next 35 years doing the same thing.
Daniel Raimi: Wow, that's really funny. I didn't know that about the way that folks are staffed at Goldman. Did you grow up in southern Louisiana, or the north?
Bobby Tudor: No, central Louisiana. It's called Alexandria, is the name of the town. Pineville, actually even a smaller town, is where I grew up and went to high school. And it's right in the middle of Louisiana, on the Mason-Dixon line of Louisiana, if you will. Everything to the south is Cajun and French, and everything to the north is Protestant and the deep south. It was a great place to grow up, and my wife is from the same town. We met in high school and still have a lot of connections to central Louisiana.
Daniel Raimi: Wow, that's great. Well, let's talk now about Houston, the place where you live now and have lived for quite some time. As I mentioned, we're going to talk about the potential future role that Houston can play in the energy transition, but let's talk first about its history. I know this is impossible to do in a short period of time, but can you try to give us a thumbnail sketch of how Houston came to prominence, what some of its early industries were, and how it evolved before the energy industry came to prominence?
Bobby Tudor: Houston was effectively an invention of a couple of New York City–based land speculators, who very effectively sold the dream and established a little outpost on the mosquito-infested banks of the Buffalo Bayou in the 1840s. And the reason they thought it could be interesting was that it could be an effective transportation center, or rail center, connecting the cotton industry of Texas and the burgeoning lumber industry of east Texas. So, there's something called the Big Thicket, which is just north and east of Houston, which is very, very dense, high-quality southern pine sawtimber, and as the United States was expanding southward and westward, the need for that sawtimber grew and grew and grew. There was a lot of it in East Texas, and then of course the cotton business in South, Central, and West Texas was booming.
Railroad connections to those places became important, and that's really the basis of Houston's founding, if you will. It had nothing to do with oil and gas—oil and gas came much later, with the Spindletop discovery in Beaumont, just to the east of Houston. So, it was really a railroad center for cotton and lumber.
Daniel Raimi: Yeah, that's great. Well, let's talk now about Spindletop and the emergence of oil and gas in Houston. Most of our listeners probably know that oil was first discovered commercially in Pennsylvania, and Standard Oil, the big industry behemoth that was built by John D. Rockefeller, was founded in Ohio. Can you tell us how Houston came to prominence, and the role of Spindletop?
It's funny—I actually have a poster of the 1901 oil boom in Spindletop in my office, where there is a gusher shooting out of an oil rig, and there's actually a band all around it playing, celebrating the well coming.
So, can you tell us about Spindletop and how Houston emerged?
Bobby Tudor: Well, what was unique about Spindletop relative to what Colonel Drake had done in Pennsylvania, it was just one of quantity. So, when Spindletop was discovered, it flowed at approximately 100,000 barrels a day for six days in a row, which were volumes that really had previously never been seen anywhere. The importance of that was that, for oil to ultimately be used for transportation purposes, you're going to need to have very, very large quantities of it, and those quantities really had not existed in the discoveries that had happened in Pennsylvania. I mean, to that point, oil had really been used for heating purposes and lubricant purposes.
So, it became possible to really think about oil as a transportation fuel. And of course, at the same time, you really had the development of the internal combustion engine, and then ultimately the automobile industry, led by Henry Ford and Detroit. All of that came together at once, more or less, within about a 20-year time frame. And, in addition to Spindletop, you also had some very large early discoveries in East Texas, north and east of Houston, and you rolled all that together, and it made Houston geographically important, if you will.
And, much in the same way that Standard Oil of Ohio became the behemoth in that part of the world, Gulf Oil and Texaco were the two companies that ultimately developed Spindletop in that field, and they, of course, today are Chevron. So, some of the largest energy companies in the world really were ultimately birthed in those places and continue to be with us today.
Daniel Raimi: Yeah, and was it Houston's proximity to the export market that helped make it attractive for many of the companies to locate there? Or was it just the closest reasonably sized town?
Bobby Tudor: I would say, in the beginning, it was more the latter. It was the closest reasonably sized town, and there really was no true export market at that time.
Now, around the same time, you had another very important event in Houston, which was the famous Galveston hurricane—the largest natural disaster in the history of the country. The effect of that Galveston hurricane was that it provided an impetus for what ultimately became the Houston Ship Channel and the creation of Houston as a port, effectively displacing Galveston as a port. And it was only really with that, that occurred in those first 20 years of this century, that Houston actually became a port. And of course, as time went on, that became more and more important to Houston.
It wasn't really, though, until the 1950s that the Gulf of Mexico became an important piece of the energy puzzle. But when that happened, Houston was extraordinarily well placed to be the leader in that industry, as well—really because of its location, with the only real competition being New Orleans. And Houston grabbed the mantle there, and it very much became the center for offshore oil and gas exploration, and the United States as well. So you roll together Spindletop, East Texas, and the Gulf of Mexico, and by the 1950s, Houston was quite well-established as a really important energy capital.
It wasn't the only one. Arguably, Tulsa, for example, was a bigger, more important town in the energy world than Houston was in 1960, for example. But as a good lesson in why policy decisions mattered, Houston built a big international airport, and more aggressively built infrastructure, and just more commercially went after the opportunities, and ultimately, towns like Tulsa became very much second fiddle to Houston with regard to the US oil and gas world.
Daniel Raimi: Yeah. And that's a perfect transition to the next phase of our conversation about strategic investments and thinking about the future of energy. So, before we talk about the energy transition—the long-term energy transition—let's talk first about booms and busts, which are a well-known phenomenon in the oil and gas industry. But Houston, and Texas as a whole, really has been pretty successful in diversifying its economy over the last several decades. Oil and gas is still very important, of course, but not nearly as much as it was when you graduated college in the 1980s, let's say.
Bobby Tudor: I'm not sure that's true, by the way.
Daniel Raimi: Oh yeah? Okay.
Bobby Tudor: That is the narrative one hears is in Houston, but what I would say to that is that we have 25 Fortune 500 companies here. Nineteen of those 25 come from the incumbent energy world. A few of those are in the power business, but it's really probably more dominated by large energy companies today than it was when I graduated from Rice in 1982.
So, if you think about large companies that existed here then that don't exist here today, Compaq Computer would be one, although we have just recently re-attracted Hewlett-Packard Enterprises to Houston. Browning-Ferris Industries, American General, some very large banks, Cooper Industries. We actually had more and larger non-energy-related companies in Texas in the early 1980s than we do today.
I think a myth that we've told ourselves in Houston in the past decade is that we have really meaningfully diversified our economy here, when that's probably less true than we would like to believe.
Daniel Raimi: That's really interesting. There was a report that I read from the Dallas Fed, which came out maybe six months ago, about how on a GDP basis, the economy of Texas has become less reliant on oil and gas. But it's interesting to hear that you don't necessarily see it that way.
Bobby Tudor: Yeah, I don't. And there are other parts of Texas where that's less true. I mean, I think Dallas, for example (where the Fed is located), has diversified more effectively. But I think also you have to dig behind those numbers and try to understand what diversification means, and what's the difference between a direct job and an induced job, for example. And in greater Houston, in our region, approximately 40 percent of our jobs are either direct or induced energy industry jobs. That's a very, very high percentage by any measure, even if you compare it to entertainment in Los Angeles, or automobiles in Detroit, or finance in New York City—it's a very large number.
Daniel Raimi: Yeah, that's really interesting. And, just so listeners know, the idea of an induced job is one where—let's say an individual doesn't work for an oil and gas company, but maybe they work for a food-services firm that provides catering for the oil and gas company.
Bobby Tudor: Exactly. Often, the example I use is that if you run the Subway sandwich shop at the ConocoPhillips headquarters, you think you're in the restaurant business, but actually, you're in the oil and gas business.
Daniel Raimi: Yeah, really interesting. Well, let's transition now and talk about the energy transition, which is, I know, where you are predominantly focused. When you think about the future of energy, what are some of the key strengths that you think Houston can bring to a cleaner energy future?
Bobby Tudor: Well, there are many, and we are very excited about and focused on our opportunities in the energy transition here in our region. You start with location—you go back to the Spindletop analogy, and this time it's a bit different, and it has more to do, frankly, with our port, and with our export and import capacity.
Houston, for example, and our region, has become the LNG [liquefied natural gas] export capital of the United States. That's because of our proximity to very low-cost natural gas and our location on the Gulf of Mexico. It also is a really important hub, if you will, for imports. And so, for example, as you think about the importance of batteries to the energy transition, getting those batteries produced and then spread out to the places that they need to be is a really important piece of the puzzle, and Houston is extraordinarily well placed to be a leader in that, as well.
Our proximity to very low-cost renewable energy is also important. I think most people know now that Texas is the largest wind-power producer in the United States, and currently the second-largest solar-power producer, and we expect that by the end of this calendar year, we'll be the largest solar-power producer, so we have a lot of that in our region, and good access to it. As we think about everything from green hydrogen to electrifying our heavy industry here, that access to renewable power is actually a big, competitive advantage. So, for a lot of reasons, we like our location, and that's one point.
Another would be that we like our intellectual capital and skill sets. For example, there are more chemical engineers per capita in greater Houston, Texas, than in any other region in the country, by a very long shot. And what is the energy transition about? It's about chemistry, really, at its heart. We're very focused on being the intellectual center of the energy transition, and to do that you have to be where the brain power is, and we have a lot of it here. Another big part of our skill set base, if you will, has to do with large-scale project management. The energy transition is highly tied to large-scale project management, and we are great at that in the incumbent industry business. If you need thousands and thousands and thousands of workers and managers and people deployed to projects to get big, complicated things done, you come to the companies in Houston, Texas. And then also, all around the edges of it—whether it's power trading, or geophysics for geothermal, or electrical engineers, you name it—we just have a lot of it here in our region. So, we like our skill set and base.
And we also like our entrepreneurial culture. Houston was, as I mentioned before, a real estate deal in the beginning by two New York real estate developers who saw commercial opportunity. And that, at the end of the day, is what Houston is really all about. We are very good at looking at money on the ground and deciding we want to pick it up, and to some degree we're looking at the energy transition that way. We think there's enormous commercial opportunity around the transition, we think we are well positioned to capture it, and we intend to go after it. So, for a lot of reasons, we really do believe that Houston is extraordinarily well positioned.
Daniel Raimi: Yeah, that's really interesting. Let's imagine a future scenario—maybe 20 years down the road, 30 years down the road, whatever time frame you think is relevant. If everything goes right, according to whatever plan you might have in mind for Houston's economy (specifically its energy economy), what do you think the region's economy will look like, and what role will energy play?
Bobby Tudor: Well, things are changing, and they're changing reasonably rapidly in some sense, but let me start with our base oil and gas business. We do believe that the base oil and gas business in Houston will continue to be quite important to Houston's economy for many decades to come. And I don't know if “many decades to come” means three decades or five decades, but it means many decades, and that's because (and this has become, I think, very obvious to the world here in the last few months) the world will need a lot of hydrocarbons for some period of time, and Houston will continue to be the world capital of that, and the challenges that we face are in fact dual challenges—they're the challenges of continuing to provide the world with reliable and affordable energy while at the same time making this transition.
So, the incumbent industry will continue to be quite important to Houston. We just don't think it's likely to be a big growth engine for Houston in the same way that it has been over the course of the past decade or two. So, from 2008 to 2018, that decade, US production went from 5 million barrels to 13 million barrels of oil, and Houston was by far the great metropolitan beneficiary of that trend. That's highly unlikely to happen again, and if anything, we would expect global demand for oil to peak in the next decade and then start to flatten and decline over time.
And what that means is, given continued efficiencies in the business, we just don't see a bunch of job growth associated with the incumbent business. We see real consolidation among the companies; we don't see a ton of new company formation in that sector. And so, as we're looking for growth, we need to be looking in other places. And one obvious other place is in energy transition–related companies, where we do think there will be a ton of new company formation, we do think there will be a lot of fundamental demand growth in the business, and we want to make sure that we're well positioned to take advantage of that. We think that the jobs that we might lose due to ongoing efficiency gains in the incumbent industry can be more than offset by jobs that we will gain via growth in transition-related companies.
Daniel Raimi: Yeah, that's really interesting. When you think about those transition-related companies, how specific do you think the city—either as a government entity, or as a group of entrepreneurs—needs to pick “winners,” or “losers,” let's say? I know that term is fraught in a government policy context, but if you were advising the city on how to invest in the energy transition, would you focus on certain technologies or fuels, or would you focus on enabling conditions?
Bobby Tudor: Well, we start with areas where we feel like we do have an embedded strategic advantage. So for example, all things carbon-capture-use-and-storage [CCUS] related, and all things hydrogen related, we feel like we have a fairly obvious competitive advantage in those two technologies, and we think those two technologies have great promise. I personally am a big believer in CCUS as a really important piece of the puzzle, simply because the cost of completely re-plumbing the world's energy systems is prohibitive, and we're going to have to make progress with CO₂ emissions reductions in our extant footprint, and the quickest and most cost-effective way to do that is via CCUS.
The largest CCUS project announced in the world by a factor of 10 has been announced in greater Houston, on the Houston Ship Channel, and that's because the conditions are right, here, to do a project like that. That has to do with our large industrial base (the Houston Ship Channel is the largest contiguous industrial complex in North America), it has to do with the infrastructure that's already in place, it has to do with the geology that's close by that will allow for sequestration, et cetera, et cetera. So, all things CCUS, we feel like we have a big competitive advantage in, and we ought to be all over that.
Hydrogen is another area where we feel like we have a big competitive advantage. Sixty percent of all the dedicated hydrogen pipelines in the United States are in greater Houston, Texas. Six-zero percent. And, furthermore, when it comes to building new pipelines, that's something we're good at here. It is a fundamentally well-trodden path when it comes to getting pipelines permitted and built in our region, and we're going to need a lot of that in the hydrogen space. You cannot say the same thing about greater New York City, or greater Chicago, or greater Los Angeles, or greater San Francisco, or greater Anywhere, really. So hydrogen is very promising technology, particularly as a way to decarbonize the most difficult-to-decarbonize sectors, like cement and steel and petrochemicals, and we have large plants of all of those types in our region, as well. So, those would be a couple of obvious places for us to start, and we're all over that.
At the same time, when it comes to wind and solar and truly non-hydrocarbon-based technologies, we are also already a meaningful player in that space. I would call biofuels another space where we're already active and leading. We have those companies here in Houston—most of the larger companies in those spaces are headquartered here, as are the industrial gas companies, for example. So, we want to make sure that we are very actively growing in those areas, by attracting those companies and getting them to expand here and see Houston as an important place to be.
And then, finally, the whole innovation ecosystem is an important piece of this puzzle, as well. You may know that Greentown Labs, which is the largest climate tech accelerator in North America, headquartered in Somerville, Massachusetts, opened their second home in the United States one year ago this week, in Houston, and it's been hugely successful. They are now housing 60 start-up climate tech companies.
One interesting fact I just heard from their team recently was that it took them six years in Somerville, Massachusetts, to get to 60 companies. It took them one year in Houston, Texas to get to 60 companies. So, innovation and entrepreneurship is alive and well here, and we are very focused on working with our academic institutions; our philanthropic institutions; our state, local, and federal governments; and our income and energy world, to really supercharge that piece of the pie, as well.
Daniel Raimi: Yeah, that's really interesting. Fascinating about Greentown. I knew about them, but I didn't know they were growing quite that quickly.
So, Bobby, just one more question before we go to our Top of the Stack segment, which is looking at the other side of the coin—the barriers that might stand in the way of a successful energy transition, whether they have to do with policy or politics or infrastructure. What are some of the biggest barriers that you see?
Bobby Tudor: One of the things I worry about is something we've just actually recently experienced, which is that underinvestment in the incumbent oil and gas world can lead to humongous disruptions that I believe ultimately will actually slow progress toward the transition. Because what happens when the consumers of energy face enormous price shocks is they get very, very focused on what they're paying for their energy, and they get unhappy, if you will. And we need a transition that is orderly. We need a transition that continues to supply reliable and affordable energy to the consumers of it, and we need to be producing enough free cash flow that energy players can use it to invest in new parts of the business. And so you roll all that together, and the volatility that we've recently had with prices is, in my mind, actually not helpful to the energy transition. We're going to have to somehow make sure that we are investing adequately in the incumbent business to help navigate this and have the transition be an orderly one.
It is certainly possible, on the policy front, that we can make poor policy choices that would make Houston uncompetitive. For example, there's still a lot of really important policy choices that need to be made at the state and local level, as well as at the federal level, around CCUS. For example, where does the liability sit with the CO₂ that's been sequestered? That's a really, really important question that no one has really figured out yet. If we in Texas, for example, came up with a solution there that made us uncompetitive with Ohio, or Illinois, we could lose our competitive advantage. So, that's another example of where policy choices really do matter.
But other than that, I have to say I'm quite confident that the pieces are here for us to still be the energy capital of the world, in an energy world that looks quite different 30 years from now than the way it looks today.
Daniel Raimi: Yeah, fascinating. Great points.
Well, Bobby Tudor, formerly of Tudor, Pickering, Holt & Co., and currently with the Houston Energy Transition Initiative, this has been really fascinating. I’ve really enjoyed your perspective. And we’d like to close it out now with the same question that we ask all of our guests, which is to recommend something that you've read or watched or heard recently that you think is really great and you think our listeners might enjoy. So, what's at the top of your literal or your metaphorical reading stack?
Bobby Tudor: If your listeners have not read the Bill Gates book, How to Avoid a Climate Disaster, I would highly recommend it. I think he gets a lot right there. He breaks it down into its components, if you will, the nature of the challenge, the nature of the costs, and potential solutions. I think he probably doesn't pay enough attention to this issue of investing in the incumbent business and why that is important to an orderly transition. But on the whole, it is very thoughtful, very comprehensive, and very readable, and I highly recommend it.
Daniel Raimi: That's great. Really interesting that you mentioned that—one of Gates's lead climate advisors is Ken Caldeira, who we had on the show, gosh, I want to say about a year ago, and he was talking about the process of writing that book and collaborating on it. So, now that it's out in the world, it'll be great to check out.
Bobby Tudor: Excellent.
Daniel Raimi: Great. Well, one more time, Bobby Tudor, thank you so much for coming on the show today, helping us understand Houston's energy history and its potential energy future. We really appreciate it.
Bobby Tudor: My pleasure, Daniel. Thank you for having me.
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Resources Radio is a podcast from Resources for the Future (RFF). RFF is an independent, nonprofit research institution in Washington, DC. Our mission is to improve environmental, energy, and natural resource decisions through impartial economic research and policy engagement. The views expressed on this podcast are solely those of the podcast guests and may differ from those of RFF experts, its officers, or its directors. RFF does not take positions on specific legislative proposals.
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