Extended Interview: Mike Wirth

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1:11Studies show kids who use IXL score higher on tests, proven in all 50 states. And get this, IXL is used in 96 of the top 100 school districts in the U.S. That's a huge endorsement. Make an impact on your child's learning. Get IXL now. And listeners can get an exclusive 20 % off IXL membership when they sign up today at IXllearning.com slash audio. Visit IXllearning.com slash audio to get the most effective learning program out there at the best price. And we're joined now by Chevron Chairman and CEO Mike Wirth. Welcome to Face the Nation. Thank you, Margaret. It's good to have you here, particularly in this moment in time, because it feels like we're in this global energy shock.

1:54What we heard from the head of the International Energy Agency, he said, if you combine the 1973 Arab oil embargo, the 1979 Iranian oil crisis, and what happened around 2022 when Russia invaded Ukraine, if you combine all those things, that still isn't the scope of what we are experiencing. Is that how you put it? Well, the way I would frame it is the energy system has lost an incredible amount of flexibility. The global economy consumes about 100 million barrels of oil every day. A barrel is 42 gallons. About 20 percent of that moves through the Strait of Hormuz. So that's been significantly disrupted.

2:37Normally, the energy system has shock absorbers in it. So we have inventory in tanks at facilities. We've got inventory on the water in ships. We've got inventory in strategic reserves. All of those have been pulled down over the last couple of months as these events have unfolded. And what it's done is it's taken those shock absorbers and made them much less effective in the system. And so disruptions normally are met by moving these inventories around and price response can be muted. As the shock absorbers are withdrawn, the shocks translate a little bit more directly. And so I think what he's referring to is we're in a period where there's been significant supply taken out of the system.

3:21And we are facing this upward pressure on prices and volatility that has manifested itself thus far and likely to continue. Likely to continue because it's unclear if we have a ceasefire or an end to the war. I mean, if there is an actual negotiated end to the war, do prices come down or is just a truce enough to give relief? What's really needed is for flow to resume through the Strait of Hormuz. You can't take 20 percent of the energy out of the system. And some of it's finding its way around to the Red Sea. But there's still a substantial amount of world energy supply that is not able to flow.

4:02And so that's the key thing is to restore that flow. It allows markets to begin to rebuild these inventories. It allows us to get products to where they're needed and to alleviate some of the pressure. But that all will take time. It's a world where we've got logistics of ships and pipelines and moving things around to markets around the world. And so that's why I say I think it's going to be with us for some time, because even if the strait were to open today, getting supplies to where they're needed and resuming the normal functioning of the system is going to take some time. So how heavily mined is the Strait of Hormuz?

4:39Because you have intelligence analysts giving you data. How much risk is there to go through that point? Yeah, I don't know. I can quantify how heavily mined the Strait is. But clearly, Iran has the capability to hit vessels as they move through the Strait. We've seen that happen, maybe not daily, but certainly with some degree of frequency. And it's not just mines that they have. There's other means that have been used. And we've been moving ships through that part of the world for years and years and have seen some of these capabilities. And so I think it's very difficult militarily to deal with that because they've prepared these capabilities.

5:18And I think they've shown the ability to exercise them. And so the president and the administration are focused on that as part of the negotiations. And we certainly hope that they're successful with that. If they can figure out who to negotiate with, the president says that's part of the problem right now, not knowing who's actually the decision maker in Iran. But we did see the Washington Post report that the Pentagon informed members of Congress that it would take approximately six months to clear out the strait. And that's in a post-combat situation. As a CEO, what do you need to see to feel confident to put a ship through the Strait of Hormuz?

5:55Well, we'd have to believe that our people on the ship will be safe. the cargo will be safe and they can be transited with a high degree of confidence. We'll work with the military authorities, the U.S. Navy, to make that assessment. And certainly many other shippers and ship owners are faced with the same questions. I haven't seen the report you referenced, but we work closely with the U.S. Navy and other military organizations around the world to ensure safe transited ships all over the world. And so it's a decision we would make in collaboration with those kinds of experts. At one point, the energy secretary was on this program, and he said the first few ships would likely have a naval escort.

6:36Is that something you would want, like warships escorting through? Certainly seen naval escorts used in the past when there have been conflicts in that part of the world. We've had ships that have been escorted through the strait. I think in the early days, it's very likely that you could see naval escorts, because I think some of the risks are not just mines that could be placed in the strait, but they could be also risks that could come from the land in other forms. And so I think having the Navy with those ships that make the first transit would provide a higher degree of confidence that if there were to be something happen, that you'd have some measure of defense.

7:15You just need to know with confidence that you are able to go through without getting hit. And that you can kind of adequately price that risk at this point. Because you're saying the risk has always existed. The risk has always existed. So pricing the risk is not the issue for us. It's the safety of our people. Our highest priority is the safety of our people, the security of our assets, protecting the environment. So the risk that you could have someone injured or worse, that you could have a ship damaged or you could have an oil spill, those are the things that we're really concerned about.

7:51But the pricing of the risk, the insurance, those things are all manageable. It's really the safety of people and the protection of the assets and the environment that will govern our decision making. When we talk about pricing, though, and sort of going back to pre-start of the war, it's not just the straight. Twelve refiners in the Middle East were hit by a missile or a drone attack, according to Clearview Energy. So the infrastructure itself has been damaged. How long does it take to get production back as well? Well, it's going to take, in some cases, weeks and months, in some cases, years.

8:25There have been oil fields that have been just shut in because there's no place to store the oil. Sometimes these fields, it's not like turning the tap on your faucet. These are complex reservoirs with a lot of subsurface dynamics. So those have to be brought back carefully. There has been damage to upstream, midstream and downstream infrastructure like refineries. I think people are working to repair that to the extent that they can. Some of these are easier fixes than others. Some will be years. Some of the LNG facilities that have been damaged, the type of equipment that needs to be replaced, has a supply chain that will require years to replace it.

9:00And so I think it'll come on gradually, depending upon how quickly some of the damage can be addressed. Why do you think this was such a surprise? We're not anticipating in that region that the drones would be as effective as they were, or that the Iranians would be as successful in shutting down the Strait of Hormuz. Yeah, that's a question that is probably best answered by others. I don't know what was expected and how that would compare to the reality. Certainly, you know, most reports would suggest that Iran had been preparing for something like this. I think the other states in the region had their defensive capabilities.

9:37But, you know, when conflict begins, it can be very unpredictable how it unfolds. Clearly. And when it comes to the price, when we look at what's happening out there on the markets, that's one thing. That's traders placing bets. The American people are looking at the cost when they gas up their car. When will things return to pre-February 28th and the start of this conflict? Yeah, it's one of the things I've learned in over 40 years in this industry is predicting price is extremely difficult, even in normal times. markets can surprise you. This is not a normal time. The dynamics that are affecting supply are quite unusual.

10:19The potential for that to flow through into the economy and maybe slow demand is, I think, increasing. People use less gas, you're saying, because of the higher price. Certain parts of the world, it's not just gas. It's LPG for cooking in South Asia. It is jet fuel in Europe, a number of products are becoming very short in supply. Behavior changes in a couple of ways. One, people will use less energy. Second one is people will hoard energy. Back in the 70s, I recall during the embargo of the U.S., in my family, we would drive around with a car as full as we possibly could. Normally, people drive around, they're comfortable with a half a tank or a quarter tank of gas.

11:01And so you'll see people will hold on to supplies that otherwise they might not, they may use less. And so predicting both demand and supply in a market that's this dynamic is very difficult. I think the key thing is, as I said before, the shock absorbers are being drained out of the system, which means there's this upward pressure on price because supply is getting tighter and the ability to resupply is getting more difficult. and that increases the likelihood of volatility as well. So we can't say that gas prices have peaked, for example? I think it's very hard to say that because you have to make a bunch of assumptions about that and it depends on what you assume.

11:41You mentioned jet fuel. That doesn't have as long of a life, right? You have to refresh and replenish storage pretty quickly. We're reading about airports running out of jet fuel. What's the reality there? What is the supply and what does that mean for Americans who might want to travel? Yeah, inventories of jet fuel in certain parts of the world were at seasonally relatively low levels before the conflict began. The Middle East refiners are significant exporters of jet fuel, particularly to Europe, where 75 percent of Europe's imported jet fuel tends to come from those refineries. It's not flowing today.

12:17So we are seeing jet fuel tighten very quickly in Europe, in Asia. and we're seeing airlines announced adjustments to their flight schedules. We're seeing it flow through into fares. I think that's one of the first places it'll be felt most broadly. I mean, we've seen some upward pressure on gasoline prices now. I think aviation is clearly an area where it's going to probably get worse over the next few weeks. Get worse over the next few weeks, but that still has a lag effect. I mean, what you're saying is if you're buying a trip to Europe, expect to pay a heck of a lot more, even if it's months from now.

12:52Yeah, again, I can't predict how the airlines are going to price their product. But I think the upward pressure that they're seeing on prices and the tightness in the market is likely to lead to further route optimization. And so flights may not be as abundant as they otherwise would have been. I think planes will probably be more full than they would have been. And yes, fares could be higher. So when you hear the Treasury Secretary or the Energy Secretary say$3 a gallon and, oh, it'll come down again in the next few months, you're saying we don't know enough to actually make hard predictions.

13:28That's what I hear you saying. Yeah. There's kind of an old axiom that I can tell you the price, I just can't tell you when. It's very difficult to predict these things because markets are dynamic. They can respond to things that we don't anticipate. And the one reality is that these shock absorbers are not as effective as you get down to lower levels of inventory. And so I think that's going to be with us for a period of time. So the longer the conflict or this period we're in without resolution, it's going to continue to weigh. I think it can extend these market effects. So the president issued five different memos this past week applying the Defense Production Act to oil, natural gas and other energy infrastructure.

14:12This is going to, in theory, allow him to increase production. Can you just turn on production at a moment's notice? What difference does this make to you? Yeah, you can't turn on production at a moment's notice. It takes engineering. It takes supply chains. It takes contracts and workers moving and being mobilized. So it takes time to bring new production into the market. Our company had record production in the U.S. last year, 2 million barrels a day, a million barrels a day in the Permian. We're going to grow 7 % to 10 % again this year. So we do have plans underway to deliver more oil to the market.

14:48That's out in North Dakota and other parts of this country. North Dakota, outside of the country, some other locations as well. So we're investing to grow. But that has a lead time and it has planning and then execution time involved. The Defense Production Act intentions of the government, I believe, are aligned with some of their broader and pre-existing objectives to encourage investment in power generation for AI, for instance. And so I'm not sure that it is solely intended to respond to the current situation in the Middle East as much as it may be part of the broader goal to encourage more investment into energy infrastructure in this country.

15:31But the White House is urging energy companies to pump up production, right, to help alleviate costs? How much pressure are you getting? When supply is short, you want to bring as much supply into the market as you can. The administration has taken some actions that I think are very positive. The release from the Strategic Petroleum Reserve is helpful. There's something called the Jones Act, which puts restrictions on shipping in the U.S. that has been relieved, which provides more flexibility, which we're using to move supplies from places where they're plentiful to places where they're becoming very tight.

16:05That is like this 1920s law that required American ships to go to American ports. Built in American shipyards, crewed by American mariners. And there's only so many of those ships in existence, and they're fully utilized all the time. And so to make these incremental voyages, you need to bring other shipping assets into the mix, which the waiver of the Jones Act has done. And so we've been bringing crude oil and products from the Gulf Coast of the United States around to the West Coast to supply Alaska, Hawaii, California. Those are good actions that can help in the short term create supplies where supplies are needed.

16:38The longer term solution is really to have policies that encourage steady, continuous investment in infrastructure to increase supply and create a more resilient energy system over time. But for that, you need the other branch of government. You need Congress to go forward with permitting reform, right? I think permitting reform is a critical enabler of investment in all types, including wind and solar and nuclear and geothermal and traditional energy like oil and gas. It's easy to stop projects from being built in this country today. It's very difficult to get the permission to build it and then have it survive the inevitable challenges that it faces through the legal system.

17:15And so there's good work underway in Congress. There's some good legislation that has been drafted and is being discussed. And we're very supportive of permitting reform that allows appropriate environmental protection and oversight, appropriate legal provisions, but then also allows this country to invest and build infrastructure for the future of all types. But then you also need a vehicle and you need Congress to actually act. I mean, right now, Congress is struggling to get very basic funding deals done. You're asking for them to write new laws. They haven't been doing that a lot lately. It's a very evenly divided Congress, and it has been difficult to get legislation done.

17:54I think this is important enough to the economy and has some bipartisan support that I remain optimistic that we can see something emerge. Do you have any pledges from leadership that they will try to move on this because of the emergency we're in? Well, we've seen Congressman Westerman, Senator Lee have been working this. They've been working with colleagues on the other side of the aisle. And there's legislation that has been moved from the House to the Senate. There are discussions underway. And I can't predict the outcome of the process other than say, I think it would be really good for this country to see that succeed.

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20:02It's where America shops for furniture. Hey parents, we all know summer break is for fun, but it's also a time when kids can start losing some of the progress they made during the school year. We want them to stay engaged and keep those young minds active. Between camps, vacations, and family time, it can be tough to keep a learning routine going. That's why I want to tell you about IXL. iXL is an award-winning online learning platform that helps kids truly understand what they're learning, whether they're building math confidence, strengthening reading and writing skills, or reviewing science concepts.

20:37From pre-K through 12th grade, iXL offers personalized interactive learning that adapts to each child's level and pace. It's an easy way to keep learning going through the summer and helps kids feel confident heading into the next school year. Studies show kids who use IXL score higher on tests, proven in all 50 states. And get this, IXL is used in 96 of the top 100 school districts in the U.S. That's a huge endorsement. Make an impact on your child's learning. Get IXL now. And listeners can get an exclusive 20 % off IXL membership when they sign up today at IXllearning.com slash audio. Visit ixllearning.com slash audio to get the most effective learning program out there at the best price.

21:23So the energy industry famously was at odds with the last administration and vice versa. In this administration, are you and your fellow CEOs calling the White House and saying you're being too optimistic? Are you telling them how much strain there is right now? Well, one thing I will say is this is an administration that engages the business community very regularly. And it's across the board from all different departments within the government. They seek dialogue. They seek input. And they're available and accessible in a way that I think is very, very good, particularly at a time like this.

22:05We engage in discussions with them on a regular basis about the situation. I had discussions as recently as today about the things we're doing to try to ensure reliable supplies into U.S. markets. And so, yes, we speak on a fairly regular basis. But you feel you can be honest and say, because the president is telling the American people gas prices aren't that high. His cabinet is telling the American people that prices are about to come down. You're telling me that's not that certain at all. Well, yeah, I'm telling you that the risks kind of skew to the upside right now. And they know that. And the opportunity is for us to see flow resume through the strait and then at the same time pursue these policies, which I think the administration really does have as a priority to continue to encourage investment in infrastructure and our economy.

22:54The IMF director recently told us that this is going to last likely through 2026. You would say that's a fair assessment? Well, this is a significant shock to the system. It is reorienting trade flows, logistics, ships. The entire system is in a state of disequilibrium right now that has emerged over the last several weeks. And as we get to a resolution at some point in time, to establish a new equilibrium means you're going to have to resume flows. You're going to have to restart fields to our earlier discussion. You're going to have to get ships repositioned in places that are optimal to establish supply.

23:35So it will take some time. It's not a light switch, as you said. So do you think that this Iran war has refocused investment on this hemisphere? Chevron has a lot of business in this hemisphere. Do you see this as a market shift? I think it's too early to say that. I mean, this has been going on for eight weeks. Our investment cycle takes years to put assets on the ground, which last for decades. And so So our planning horizon doesn't respond to circumstances that emerge over this short a period of time. I think one of the interesting questions to watch will be on the other side of this, how does the energy system evolve?

24:15I suspect there will be structural differences in many aspects. Some could be hemispheric focus. Some could be infrastructure in the Middle East to create logistics routes that avoid certain choke points. And so I think there will probably be some differences that we see. There may be different levels of strategic stocks that countries decide that they want to hold as buffers, particularly countries that have found themselves very exposed. So I think the new energy system will look different than the one that we've been living in in recent times. I think it's early to predict with a lot of confidence exactly what that will look like.

24:53Well, in this hemisphere in Venezuela, Chevron has been the only American long term player of any significant size in that country. They have the world's largest oil reserves. The energy secretary told us after Maduro was taken out of power that the U.S. would be involved for at least a year, if not two years before they hand over full sovereignty to the Venezuelan government. How deep does that go? Like, how long do you expect the American government to be in Venezuela trying to help change their energy policies? Yeah, again, that's probably better answered by someone other than me. I think they have.

25:34Well, what needs to happen? Well, the new interim president has overseen some changes in their hydrocarbon law, which changes the terms under which companies could invest in the country. It moves things in a positive direction. It still needs some work. It's probably not enough to bring in the level of investment that would be desirable. So I think there's progress that's been made. I think the U.S. has reopened. The embassy has got some people on the ground now that are interacting with the Venezuelan government on a regular basis. Venezuelan government seems to be very interested in more U.S.