#157 - Oil, Gas, AI, and the Next Energy Boom with Elena Melchert

[00:00:00] Welcome back to Passive Income Pilots, everyone. Tait Duryea, Ryan Gibson here on another week of financial education. How are you doing? I'm doing great. I always get confused on the different ways you can invest in oil and gas. And so, you know, I always like having somebody who isn't trying to sell us on oil and gas, but is like worked in the industry for over 30 years as like, I think a scientist and worked for the government.

[00:00:26] Yep. And so I'm excited to have this interview. I think I really appreciated some of the things that we talked about, like what's mineral rights versus a working interest versus, you know, different wells and, you know, when does it pay out and what do we look for? So, Tait, who do we have coming on? Yeah, I mean, obviously, this is a huge point of interest for us. I mean, we've been involved in the oil and gas space for a long time. We obviously run a fund. I mean, we love this stuff.

[00:00:53] But like you said, you know, it's nice to have somebody on who actually has a background in government. We today have Alina Melchert. She spent 36 years at the U.S. Department of Energy. She hosts her own podcast on the oil and gas space, talks a lot about the technologies involved. It was a lot of fun. So I'm excited to get into the episode. All right, let's get into it. Welcome to Passive Income Pilots, where pilots upgrade their money.

[00:01:23] This is the definitive source for personal finance and investment tactics for aviators. We interview world-renowned experts and share these lessons with the flying community. So if you're ready for practical knowledge and insights, let's roll. Alina, welcome to the show. Thank you for joining us. Thank you. I'm so excited to be here. It's taken us a long time to actually make the date, but I'm glad that we did. You are popular. We're honored to have you. So thank you for coming on.

[00:01:50] And like us, yeah, you're a podcast host, which is cool. Yes, I am. I am a podcast host. I love it. I love it. That's what I do in retirement, right? That's after spending 36 years at the U.S. Department of Energy. So we were talking before the show about what are those topics that you have, that you touch on on your show that get a lot of interest. And so we wanted to kind of start there and, of course, get your background in your own words.

[00:02:17] Yeah, yeah. OK, so I've been in the oil business for over 40 years and it's the thing that I know. It's my craft. It's what I do, what I love. I had a real hard time when I was young figuring out what I wanted to do when I grew up. And no one told me I could be a scientist and an engineer. And that's what I ended up being. And I apply that craft to the oil and gas sector because that's where I found my home, a good fit.

[00:02:45] Like when you go to college and it doesn't quite work out or whatever, it's got to be a good fit. And then you can put up with the bad stuff as well as the good stuff once you feel like the whole package is what you want to do. So, yeah, so I started Boots in the Field at Bakersfield, California. I'm a petroleum engineer, University of Southern California and other things. Undergraduate is soil science from Cal Poly San Luis Obispo. And that's where I met my husband and he graduated before I did. So I and he got a job in Bakersfield. And so I knew I was going to Bakersfield.

[00:03:15] And so when I got there, oil was the biggest, you know, opportunity in the region, even though it's, you know, part of the breadbasket of California. It's just huge agricultural area, which soils is an application in agriculture as well.

[00:03:31] So anyway, it was easy to decide to try the oil and gas sector because the job was to work in their field laboratory where they were comparing two pilot processes for the recovery of a surface deposit of diatomaceous earth. And diatomaceous earth is kitty litter. Very, very absorbent. Very, very absorbent. And so there's natural, you know, occurring deposits. And I mean, that's where we get, you know, kitty litter. It's called diatomaceous earth.

[00:04:00] And so that's one factor. The other. Yeah. Now, you know, you're going to go to your party. Where does kitty litter go? That's right. Nice. So the one factor is, you know, the diatomaceous earth. The other factor is that Kern County, Bakersfield, and, you know, in through Central Valley and Central South in California is our huge oil deposits, huge oil deposits.

[00:04:26] And so there's so much oil that right now California is not producing oil. It's seeping even more dramatically to the surface than it ever has. I mean, you go anywhere in Bakersfield, even before this policy, and you will see natural seeps of oil at the surface. And it's not very pretty. It's not very healthy. I mean, it's, you know, we really need to get a control on that.

[00:04:53] And so not to digress, but the best way to control it is to produce it. Then you know where it is and you can contain it and the like and then put it to some good use. So Boots in the Field, Bakersfield, California for Getty Mining Company comparing two processes for recovering of oil from the diatomaceous earth surface deposit, oil bearing diatomaceous earth.

[00:05:14] And then I moved to the Getty Oil Company in field operations, heavy oil, stripper well production on the west side of Kern County where Bakersfield is, west side. And then in 1985, I had the opportunity to go to work for the U.S. Department of Energy as a petroleum engineer because Getty had put me through degree in petroleum, master's in petroleum engineering program at the University of Southern California.

[00:05:40] And I just had a class or two to finish up when I moved to the Department of Energy. But I had so much experience, field experience in oil production. So the Department of Energy hired me as a petroleum engineer. I finished my, you know, my coursework. And so I was in production for about a year, 18 months. But reservoir engineering is what I really prefer. And I found my home there. And so I'm a reservoir engineer, spent the rest of my career kind of doing that.

[00:06:09] The government owned 80% of a very massive deposit of oil and gas. The Navy used to run on oil. And so it discovered this giant oil field in Bakersfield. And so it's called Naval Petroleum. It was called Naval Petroleum Reserve number one there in Bakersfield. And then sort of at Elk Hills oil field.

[00:06:36] And then across the street was Naval Petroleum Reserve number two. Casper, Wyoming was Naval Petroleum Reserve number three. And then there was NPRA, Naval Petroleum Reserve Alaska. So the Navy was ensuring energy security for defense. And the, I think the discovery well was 1920 or something, something like that. So boots in the field, giant oil field, and then came to the Department of Energy headquarters

[00:07:05] as part of a leadership program in 1989. And I've been here ever since. Nice. That's incredible. I love it. I told you, when you find your fit, you, you know, it's not working. So what do you talk about today on your show? Like what, what's your topics typically? Who are your guests? What's, uh, you know, you take all that experience and wisdom over the last 30 plus years. And, and, you know, you're so passionate about it. What do you, what do you like to share with your audience? Yeah.

[00:07:31] Well, people know that I, um, worked at the Department of Energy headquarters as the director for oil and gas upstream research. So, you know, exploration, drilling, production, and we were involved in, uh, increasing ultimate recovery and operational efficiency. And what that means is for conventional reservoirs, before we had, um, shale, um, for conventional reservoirs, it's, it's very straightforward compared to shale.

[00:08:00] Uh, to produce the oil and gas, but even so we don't recover all of it, all of the natural endowment of oil and gas in the reservoir of that we get 40, you know, 60% would be a lot of recovery, a high recovery factor. So there's still a lot of oil in the ground. We know exactly where it is and it's easier to recover than shale. Um, when shale came along, that was a lot of production very quickly, but the decline

[00:08:30] like 20% recovery is a big well for, um, uh, for shale. So, you know, I went through the transition of, of, uh, being involved in conventional recovery and then the shale revolution. The Department of Energy in the eighties was the first to invest big dollars in understanding natural fractures and then how to create fractures. Uh, and then when, you know, shale came in, that's a whole nother, you know, big story,

[00:08:58] but you asked me about my audience. And so the people I interview are technologists and technology oriented because the audiences, the audience ranges from people who are very deep subject matter experts in a very narrow area of upstream, uh, like scientists at the national laboratory. They understand shales at the nano scale through people with, uh, field experience who are working

[00:09:24] in the field all the way to people who are not in the oil and gas sector, but they appreciate that I will translate the technological jargon, if you will, um, into little talking points, little understandings that they can have. I will ask the obvious question for people who are like that. So my daughter, as I was telling you earlier, um, also listens, um, to the podcast and she goes with great feedback.

[00:09:47] And so she's interested in, um, what are those new fuels for flying that are not a carbon base? SAF. SAF. Sustainable aviation fuel. Yeah. Yes. Yeah. She says, oh, mom, we're looking into that now. So anyway. Well, speaking of, you know, I'm, I'm fascinated by the space and I've, I've been looking forward to this conversation for months because, you know, I think that there was a general denial

[00:10:16] for a couple of decades that the world runs on oil. I think that we were a little optimistic on the green energy transition. Um, not to say that I'm not a huge proponent of the green energy transition. It's just that it hasn't happened as fast as we all would have liked after trillions of dollars of investment. And I think that, you know, a lot like someone might be comfortable buying a steak in the supermarket, but uncomfortable with, uh, a slaughterhouse.

[00:10:46] You know, people think that electricity comes from the wall and they don't think about what it actually takes to get, you know, for your shower to have hot water and your lights to come on. And it's just, you know, I think there needs to be a more candid conversation in the U S and in the world about, you know, how do we bridge into green energy responsibly, efficiently, and also be able to power the AI revolution.

[00:11:12] You know, as pilots, we burn a heck of a lot of fuel, you know, for anybody out there. And I fly a lot. Thank you very much. Absolutely. For anybody out there that's not a pilot, you know, if you look at a triple seven, that's going from, let's say LA to London, I mean, that, that airplane is going to burn 150, 170,000 pounds of fuel just on that one leg. You pull up flight radar 24, you look at all the airplanes flying around the world and you can just multiply that out.

[00:11:38] And it puts into perspective how much oil is required in order to move the modern world. And of course, aviation only accounts for what? 4% of total oil demand. So, yeah. And then of course there's, there's the natural gas piece. So I wanted to kind of put into context for the audience, you know, what is, we're, we're 80, I believe it's a, the stat is 87% fossil fuel based still.

[00:12:07] We have successfully transitioned about 13% of the world's energy needs to, to renewables, but where are we in that transition? What does that look like? How is AI throwing a wrench in the fan here? Because, because that's just dramatically increasing your need for overall power. Where are we in terms of moving to a more sustainable world? I think, you know, peak oil is expected around the mid 2030s. What are your thoughts around that? Okay.

[00:12:37] That's a huge question. I know. Let's start with, yeah, that's okay. Let's start with, you know, sort of fundamentals about energy, not just oil and gas, but energy, right? So every aspect of a person's life depends on some element of energy. And even when you can't see it, you're still using it. So for example, you know, the lights that we have here on in, you know, the studio and the fact that we can talk, you're in, you're in another country.

[00:13:08] Ryan's on the other side of the country. That's right. And that we can do this. This is really exciting. And of course, we, we take this for granted because before COVID, we wouldn't have done so much of this, if you will. Right. I mean, it just got really, really easy, you know, with COVID, but people have a personal energy policy, whether or not they admit it. Right.

[00:13:30] So some people want to use less energy, you know, but it's really hard to, but what's happening, you know, globally is that we're moving from the core fuels to electricity. So what's electricity? Electricity is not naturally occurring. You can't drill for it. You can't, all you can do is transform another kind of energy into electricity.

[00:13:56] So for wind, we transfer or we translate, we create electricity when the wind turns a turbine and generates those electrons. Solar is photovoltaics, takes sunlight and they transfer into electricity. And then coal creates steam that is used to turn a turbine and creates electricity.

[00:14:25] We don't use oil so much for electricity, but some people do. And then natural gas is the next big player in terms of electricity for a power generation. And then on the horizon, we have geothermal, which is just a company just went, what do you call it? Just issued an IPO, just went public, Fervo, as the biggest, as the first geothermal project to kind of move in that direction.

[00:14:53] So we didn't have a geothermal industry, if you will, that generates power. We have the heat pumps, you know, that were based on Earth's heat, but not what we're talking about here in terms of geothermal. So I lost my train of thought as I was explained and all the kinds of energy, but we might put me back on track here.

[00:15:17] We were just talking about the sort of the global, you know, state of the union in terms of energy and where we are in terms of the energy mix and the transition to greener, you know, greener energy. Yeah. So I think the transition had a really good start. Lots of good, lots of big money was put in there. And I have a story that I tell and I'll tell you, you know, at the end there.

[00:15:43] But my story has to do with energy poverty, energy policy, and then a case study about California. I'm from California. You know, we've been a bi-coastal family for decades. My family is still in California, but we're here in Washington, D.C. And so, I mean, I understand the different cultures that we have with respect to how we pursue, how we produce energy, how we use energy, and how we feel about energy.

[00:16:12] But the notion is that when it comes to our lifestyle, we get to make choices. And so you can use any kind of energy that you have access to that you want to, provided you're able and willing to pay for it. So there's 70% of the world who does not live the way the lifestyles that we live here in the United States. And I'm very grateful and very privileged to be here in the United States.

[00:16:41] So when we talk about comparisons of how people use energy, a person in Nigeria who is not part of the upper class uses in a year the same amount of energy that my refrigerator uses in a day. Think about that. 70% of the world.

[00:17:04] Now, if you look at those NASA maps of the world where they show where the lights are, people who have lights on at night, they've got some power. They've got electricity. They can charge a cell phone. They can turn on their laptop when they have this great idea or want to send messages or photos to their loved ones or whatever.

[00:17:25] But where it's dark, there's still a lot of people there, but they don't have access to electricity that they can afford or that's even available to them, except maybe intermittently or just not at all. So if you want to talk about the world, that's the context. Energy poverty is a very real thing. I think those people would love to live the way that we do.

[00:17:51] You know, our immigration of the past few years has demonstrated that people want to be here. Obviously, it's, you know, because they have greater opportunities, which are created by energy. I'll just mention real quick. I'll just mention real quick that if you're interested in this, there's a great about 100 something page right up by U.S. Energy Secretary Chris Wright called Bettering Human Lives.

[00:18:19] And so if you just Google that, you can read that on a flight. It's very, very interesting. It talks about energy poverty and how energy affects, you know, people's livelihoods. I've got three questions. I'm going to go one by one, though. Thank you. You see how I can get going. I have two follow-ups. You know, pilots live and die by fuel costs, right? Jet fuel, tanks, crude oil, you know, everything's tying together to our careers.

[00:18:47] How should they think about owning a piece of this sector? Oh, well, you can tell me after I tell you this story. The fact that the price of oil is hovering around $100, I think WTI was like 97 this morning and Brent was like $109 a barrel. I couldn't translate 170 pounds of fuel into barrels, but I think that would be an interesting statistic because we measure, you know, production in barrels or whatever.

[00:19:16] So you can realize how many barrels of oil are in my airplane today. And so the price of oil is high right now because of things that do not have to do with the geologic factors of where the oil is produced and whatever. It has to do with political situations that are going on right now that are much larger than we, I think, really appreciate, number one. Number two, we don't have control over that.

[00:19:44] We can control, you know, where we drill a well, how we drill a well, how we bring it up to the surface, you know, who we sell it to. We can control those things, but these things right now are out of the control of most people. So a question I get often is, well, if price of oil is so high, how come people aren't drilling more wells? And so the price of oil is the spot market that you know about is the spot market.

[00:20:10] And so there's that means that if you needed a barrel of oil today, you could go buy it at that price right now. And then in a minute, it'll change. And in a minute, it'll change that that spot, that moment in time. That's what the price is. And so that's not how you make an investment. Right. You have to balance the risk and the reward. So having shared what I just shared, I don't know how to answer your question about how people should look at it, except for the, you know, what the facts of the situation currently are. Perfect.

[00:20:40] So a follow-on question to that. Is it still a viable long-term investment? Are we in the middle of a slow exit or, you know, what does the next 20 years look like, right? The next 20 years, the next 50 years are still going to have about 80 plus percent of the world's consumption of energy is still going to be fossil fuels, coal, oil, and natural gas. Why?

[00:21:04] Because they are dense and they are abundant and they're easy to transport and store the products. So everything else. Oh, I think geothermal is going to come online, but you just move electrons, which means wires, grid, all of you. That's not the same as the, you know, the fuel that we're talking about in terms of hydrocarbon. But so that's the new horizon. So, and that was before. So those are statistics.

[00:21:33] Those are numbers that we talk about and understand, appreciate the energy sector does. Before AI exploded. I mean, AI started slow and it's just exponential in terms of its growth. And so that changes kind of everything. That means we need more power. More, more, more. Where is it going to come from? So I don't see there being any decline in oil and gas production.

[00:22:01] And certainly coal, coal has to have some more, I think. Well, I don't know. I don't know that much about coal. I know a lot about it, but not that much too. That leads me to my last follow-up. Okay. I know you're dying to jump in, but that's why I preference this with, I have three questions. I like it. My third one is you mentioned, you mentioned this, which plays, you play, you're playing right into my next question. Oh, good.

[00:22:26] So you mentioned like exploration and infrastructure and drilling more wells and that predictability and all that stuff that that can be things. So can you just kind of explain to our audience and for me, I know, Tate, you're more of an expert in this, but the difference between investing in energy infrastructure versus exploration and production. And kind of what makes sense, you know, maybe for passive income sectors, like, you know, things that are offered to investors. Okay.

[00:22:56] So the fundamentals are that oil and gas exist in the subsurface thousands of feet from the surface. So you have to go through a process of finding it. Where is it? So we use seismic to determine that. And once you find, there has to be enough oil there to support the full production of that deposit.

[00:23:22] That means you need surface facilities, pipelines to take it away. If you don't have a way of taking the production away from the, where you discovered it, where you're producing it from to the surface vertically, you can't take it away horizontally, then you can't produce it. I guess you can store it. And that's what we're seeing in the Strait of Hormuz, right?

[00:23:48] Production had to be slowed, constrained, stopped, because there was no place to put it after the surface storage tanks were. In this case, they're shipping it, right, by boat. Yeah. Okay. Well, so the shipping part has to do with market, which is infrastructure, but it's really about where does it go to. So we produce it, we move it, but it has no value as it is.

[00:24:16] It only has a value if there's a market for it, refineries. And so that's why we transport it. So we have pipelines and we have trains and we have, well, I guess you can use trucks, but, and then pipelines, trains. Oh, and then the shipping, the tankers that move it around the world. So that's the difference. Did I give you a good answer? You get that? Great, great answer. No, I, yeah. And I think it really helps frame people, you know, for folks kind of understanding where to go in.

[00:24:46] Well, and I'll just, I'll just pile onto that, that, you know, oil is much easier to transport the natural gas and natural gas. I'll just also mention that, that, you know, a stat that, that I'm familiar with is that of all of the fossil fuel usage around the world, coal still accounts for 33% roughly.

[00:25:05] And counterintuitively drilling for more natural gas and getting off of coal, which is very dirty, very polluting and onto natural gas, which is very clean is actually a huge movement towards green energy. And so if we can get more of the world off of coal and onto natural gas, that will have a huge moving of the needle in climate impact, right? That's, that's interesting. Can I shift gears just a little bit?

[00:25:32] I got a couple of three, three, three follow-ons again, breaking them down nice and easy, right? Yeah. And I'd love to hear your take on this. So royal, royalties, right? So oil and gas royalties are kind of one of the lesser known passive income streams out there for our investors. Can you kind of break down how this actually works for someone like me who has zero background in it? How do you participate in those royalties? Yeah. Okay. So I can give you the general understanding of it, but those opportunities, you got to figure them out, right?

[00:26:01] That's where the joy is. Okay. So if you are an owner of mineral rights, and just because you own the surface rights doesn't mean you own the mineral rights. And oil mineral rights are governed by the state. And when you say surface, that means like you just own the land, right? The land where your house sits. Yeah. You own the land, but you don't own what's below the surface. Correct. Yeah. Correct. That's perfect.

[00:26:27] So if you own the mineral rights that are in the subsurface below your home, then you have something of value. And then a company, Elena's Oil and Gas Company can come over and say, Ryan, I'd like to partner with you to produce your oil and gas. And in exchange for that privilege, we will have a deal where you get part of the benefit and I get part of the benefit.

[00:26:57] And I have a working interest, if you will, because I have costs associated with the oil and gas production, but you won't pay for those. You'll just take a lesser benefit from the sale of each barrel. And so you have no investment and only royalty. And so for every barrel that I would sell, I would give you whatever royalty percentage we agreed to.

[00:27:25] And of course, you got moving targets. The first moving target is that oil does not come up the well like the water in your faucet when you turn it on. It bloops and splurts and blah, blah, blah, blah, just according to natural forces in the subsurface and in the geologic in the reservoir. And so you might get 20 barrels today. You might get 10 barrels tomorrow. Uh-oh. Now we're getting five. Oh, there's something wrong with my well.

[00:27:55] Let's go fix whatever, whatever. Or, you know, you might get, you know, 20 barrels a day and 30 barrels a day and then 100 barrels a day and then 200 barrels a day. And so you might have royalty structures that depend on higher low production or factors. It's a deal. You strike a deal and the owner's benefit who did not put any money into this investment just happened to own the mineral rights for, well, I guess they purchased mineral rights.

[00:28:24] So they came with the house or whatever. You just get that fresh off the top royalty. I feel like if you're playing the game of Monopoly and you own all the railroads, all four of them, or you own Park Place and Boardwalk, those are things you never trade away because they're going to pay out the biggest. I feel like mineral rights are those things. So has this been, is this still accessible by like everyday investors or is this space just like completely taken over by big institutions now and played out? So I don't know.

[00:28:54] I don't know that. Okay. And what, I'll tell you one story. So I have mineral rights in a state and every once in a while I get approached by, actually my husband owns them. He gets approached by people who want to drill for those mineral rights and strike a deal. And those are not big corporate people, not big corporate people. But what you will find is that the people who approach you first is the landman.

[00:29:25] Right? Now the landman in real life is not like it is on television, but that's okay. People are learning something, even if it's wrong and then they learn it correctly or whatever and fix it. Great show, by the way. I love that show. I know. I know. Anyway, so that's what royalties are and that's how, so I would say that it's just who gets there first. Who owns the mineral rights? Who owns the surface rights? Who wants to go out?

[00:29:52] So one strategy has to do with, well, I own the rights right here in this geographic location and then Tate owns it right next to me and then, you know, somebody owns whatever. And like I told you, it has to be a big enough reward to be worth the investment of all the mechanics and jewelry that it takes to bring the production up. So bonus question to that. You said your husband gets approached all the time. Why doesn't he sell?

[00:30:22] Why doesn't he strike a deal? Because the deal's not sweet enough. Got it. Okay, cool. So there's a bigger deal out there. I got it. So these income streams, you know, how do they hold up from royalties and downturns typically or is it truly passive or does the volatility make it more kind of a hands-on deal more than people think or is it just, how does it hold up? So that's a really good investor question. As an engineer, my answer is not going to be so sophisticated.

[00:30:50] But I will tell you the mechanics of it and you can translate it into your world. We love it. So, and you're talking about low oil price, right? Okay. So if you drilled your well in high oil price, right? Because you would. Because you would think that you would get that return, right? So you drill your well in high oil price and you have a certain price trajectory over time that you assume as part of your investment decision early on.

[00:31:20] Then you track, you know, actual versus, you know, your plan in terms of that price. And the first thing that has to happen is after you drill your well, you have to get paid back for it, right? You have to make enough profit from the sale of the product to pay for it. And that could take, you know, weeks, months, years. It could take whatever, whatever. So in the meantime, you've got that price of oil changing, right? It depends on what kinds of contracts you get into.

[00:31:48] And that's a whole nother world that I, you know, I'm not, that's not my world. So your investment has a, I don't know, a value that can change. And the first critical period is a payback. And then after payback, it's still, you will still have operating costs. And so the amount that you can sell for oil, sell the oil for has to be able to cover your operating costs as well, including your royalties.

[00:32:12] And so it's really about how does the price of oil move over time with respect to your initial investment? That was really well stated. And it made me, it made me think back to what you said kind of earlier in the show, which was when we were talking about a global market, right? You were like, you know, right now you look at oil. I mean, to paraphrase a little bit what you said and correct me if I get this wrong, but the global market is kind of propped up right now by politics, right?

[00:32:39] Like, like the, not, it's not our ability to drill or find it or have it. It's politics are driving, you know, conflict. And I ran the straighter moves, like all these things, right? How much do you think of that right now is as a percentage and, you know, maybe, you know, an average or a guess is politics versus kind of the demand equilibrium as a world consumer of oil?

[00:33:08] Like what, what, how, what would you say where we stand today as a percentage of, of, you know, if you, if you were to say it's a hundred bucks a barrel or whatever it is, you know, you're think that 25% of that is politics and 75% of it is actual realized cost based on production capacity, whatever that, that would be. So, so you just have to look at the oil price before this happened. Yeah. Right. That's it. I think you can also look at the futures markets, right?

[00:33:34] I mean, if you look at the futures markets two years out sitting at about 73. So I, I think that sort of answers it is. And those are the experts who know that stuff, right? So, yeah. Yeah. And where are we at right now? What is it exactly today as a recording? No, as we're recording. So this morning when I listened to it on the radio, because it moves this morning, it was, I think it was $97 per barrel for WTI. That's the U S market.

[00:34:01] And then Brent, which, which is includes some traffic transportation was like 107 or 109, something like that. Yeah. So we're 25%. You can, you can find the price of oil at any moment in time, just on your telephone. What's price of oil right now? Brent or WTI, you know, it's, it's easy. Everybody is watching it, especially now, but even when they're not watching it, right? It's there.

[00:34:29] For guys like me who don't know anything about this. Can you explain the difference between WTI and Brent? I mean, you kind of said it, but can you kind of break that down a little bit? Um, so I'll tell you a little bit of the why. So oil is not oil is not oil. Just like olive oil is not avocado oil, right? It is not corn oil or whatever those other ones are.

[00:34:47] And so the oil has value to the refinery based on what the refinery, what slate of products it can produce from that barrel of oil, depending on the design of the refinery. So few air, what is it? Air fuel? Is that what we call it? Air fuel? Jet fuel? Jet fuel. Jet fuel. Jet fuel is a certain cut of a barrel in terms of the, um, the refinery product outputs.

[00:35:18] Uh, ink is another one. I mean, obviously ink has gone down. I would say since we don't write letters anymore and publish newspapers and things like that anymore. So every barrel has a certain, um, cut that goes into these different products and that cut changes with markets, whatever the refinery is going to sell and like that. So I forgot what you asked me. I got stuck on the barrel of oil. No, Brent, Brent versus, uh. Oh yeah.

[00:35:46] So Brent is WTI, Brent and WTI. WTI is West Texas intermediate, which tends to be light. Okay. And it's produced in the United States. So our transportation factors of getting it to some market or whatever are lower than Brent, which is comparable to WTI, but it's not U.S. produced. Makes sense. That's the simplest way to look at it. Yeah. Yeah.

[00:36:15] Oh, you should ask me about Venezuela. Venezuela. Oh, that's a great topic. Yeah. Venezuelan oil is heavy and we need heavy oil in our refineries for some of the more fundamental, um, products that are produced, um, including some plastics and things that are part of our everyday life, you know, that kind of thing.

[00:36:38] So Venezuela has the largest, um, uh, resource base in the world. There's more oil there than anywhere. And that surprised me when I realized that given, you know, the Middle East and, and the like. So, but it's a special kind of oil and our refineries for ever have been, uh, built to include, to use the heavy oil.

[00:37:03] And if there's not heavy oil available from Venezuela, we have to get it from Canada, but we've been getting it from Venezuela for a long time, except for when they stopped. Then we moved to Canada. I think that's actually a really interesting point that a lot of the U S refineries are built for more of the heavy crude, but we produce light sweet crude that we then export to other countries. Right? No, no, no. I'm sorry. I'm, I mean, didn't mean to confuse you. I just gave you a real, um, superficial answer.

[00:37:30] Um, there are, uh, let's see heavy oil that well, heavy oil that does not float in water is called API. Uh, 10, but the heavy oil definition is 20. And then WTI is like 42, 45. So you have all these different grades of oil that it's just, it's a test API is a test.

[00:37:55] Um, and they just sort of clap, create these classifications so we can talk about what we're, so we can communicate the kind of oil that we have and talk about what our options are for selling it and different markets for different, uh, kinds of oil. Elena, as we sort of bring this home, I'd like to talk, I mean, you, you've been in DC for many decades doing really important work for the U S department of energy.

[00:38:20] What have been the most interesting or impactful or rewarding things that you've done, uh, in public office? Oh my gosh. You're talking about 30 plus years. Well, okay. So seven presidents from Reagan to Biden, I served in Washington, DC. And people always ask me, Oh, what was the best president? And I said, there's no such thing as a best president. They're just like you and me. And they have people who help them and, you know, they have victories and they have failures.

[00:38:49] And, you know, it's, that's the reality of it. And so it's important for everybody to be engaged in the marketplace of ideas and, and, um, you know, and vote and, uh, um, share your thoughts on the issues and learn about the issues and understand the issues. And right now, one of our biggest issues is energy. Everything is energy is not just any other commodity like eggs. It is fundamental to our economy and the world's economy.

[00:39:18] And so right now, all of our attention should be focused on energy and we need more of it, all kinds of energy. And we need it to be secure, stable, abundant, and affordable, affordable back to the energy poverty, um, story, which I interviewed Chris, uh, secretary, right. Um, before he was secretary of energy, like days before, um, the election, I will put down the show notes for you. So everybody can hear it. And he talks all about his book and the like.

[00:39:48] All right. I've got one last question. And, uh, it's a little thought of experience, thought experiment. You were starting, you have to start from scratch right now. No pension, no government job, no nothing. Right. And you've got a pile of cash and you've got to, what would your passive income strategy look like? If you had to do it all in energy, any part of the energy market, given everything, you know, about what, you know, what would you do? Where would you put the money? Well, I know mostly about energy.

[00:40:16] So there's that. And so then the question for me becomes, you know, what energy? And I definitely would add geothermal to my portfolio now because of the first company to go public. Uh, cause there are a lot of companies ready to go. And as soon as, you know, more come in, it'll be a bigger industry. But right now it's an industry of, you know, almost one, right? I mean, it's not.

[00:40:42] There are smaller companies, but, um, you know, you really make money when you are big and have large markets and like that. So I would add, um, I would add geothermal. And then I would also add, um, critical minerals. All of those things that make the batteries that store electricity. Cause we don't have other ways, but well, we have a few other ways of storing electricity, but they're not efficient.

[00:41:05] So batteries seem the ones, but you know, there was a time in, um, the Arab embargo of 1973 showed us how dependent we were on foreign oil. And so we said, why don't we diversified more? You know, why don't we have more opportunities? And so we, uh, started investing more money in different kinds of energy sources, electricity sources, solar, wind. We're big during like Clinton. And so the, the issue is, is that we need more energy.

[00:41:34] We need more and more and more. So that's, I mean, that's the bottom line, but nothing, there's no perfect energy. When we talk about clean energy and dirty energy, I mean, what do you think happens to the solar panels when they're done? What do you think it happens to the wind turbines when they're done? You know, they don't last forever. And now we're causing with, um, AI, we're dependent on, uh, critical minerals for lots of things for AI is dependent on critical minerals. That's why I'm saying, you know, about that, but we don't want to put it.

[00:42:02] My personal opinion about policy should be that we don't want to become so dependent on any one thing. For example, if you're all into AI and you never learn how to use a pencil and a paper, oh my gosh, what would happen to you there? And when I realized that they don't teach cursive in school anymore, that you mean everybody has to print? No, they use their computers, mom. Oh, you're right. I get it. It's good to have backups. It's good to have backups. Oh my gosh.

[00:42:30] Remember how to use those VORs for everybody listening, you know? That's right. Exactly. Well, Elena, this has been, uh, an absolute pleasure. Thank you for joining us. Uh, how do people find out more about you, uh, about the, the energy sector and about maybe public policy? Well, they can listen to my website and I will certainly give you the link there. Um, and then, um, the podcast is just, um, a fun thing that I do. Actually, I'm a consultant here in Washington, D.C.

[00:42:59] And I help people access technology development, um, and put people together and like, and that's energy of consulting. And I have a website. And so I'll provide, you know, links to all of that for your show notes. Thank you so much for, uh, for coming on. Absolutely. My pleasure. You guys are so much fun. Yes. Good questions too. The ones I can answer. They're really fun. Well, thank you so much for coming on. Yep. And, uh, thank you. Thank you again.

[00:43:29] And thanks everybody for listening. We'll see you on the next episode. Catch you next time.