Geopolitics of Oil & Gas according to Liberty Energy CEO, Ron Gusek

We've gone through probably the largest disruption of oil the world has ever known. If you are a country that relies on imports for your energy supply, you are going to over the next 12 months have a conversation around the energy stack that is going to power your country going forward and what you can do to build resilience into that.

Thanks very much for having me. Looking forward to the conversation today.

I mean, look, there are often good reasons for why oil prices are where they are. But looking at oil prices today, I would confess to scratching my head a little bit about why they are so low. We've gone through probably the largest disruption of oil and arguably LNG supply the world has ever known, at least for sure, going back to the 70s. And yet here we are with anou for a piece accord between the United States and Iran. And we have a situation where WTI has fallen back below $70. We took more than a billion barrels of oil out of the global supply over the last four months. That's oil that did not get delivered to some place it was supposed to show up. Drawn down reserves as a result. Both strategic petroleum reserves in a number of countries, but also floating barrels that were sitting out there in the water. All of that oil is gone and the demand has not changed meaningfully. I would argue that the disruption was not long enough to really change the forward look for demand on oil. And yet here we are now with all of those barrels removed, reserves drawn down, refineries desperately short stock, and we've got WTI at $68, which I would argue is hardly a signal to put a rig back to work. And so I just feel there's a bit of a disconnect between what the physical realities are out in the world today and what a paper barrel of oil is trading for. And so I don't live my life in that world day-to-day, but from the outside looking in, it's a hard one to reconcile for me.

That's definitely true and I unfortunately I can't name off the top of my head probably all the countries who ultimately contributed to the reserve draw down. China absolutely holds the largest petroleum reserve I think globally and frankly I think if you add it up it's equal to the reserves of the next I don't know 32 countries in the IEA or something like that. They had managed to build up maybe somewhat prognostically their reserves over the last year. They were importing a million barrels a day specifically to put in their SPR and they got to 1.3 or 1.4 billion barrels of oil in storage and then layered on top of that another 650 million barrels of refined product. So they're sitting on something of order 2 billion barrels of combination of crude oil and refined products to go along with that. That's a massive reserve and I think the numbers are still out on exactly whether or not how much they drew down on that, whether or not they did in any meaningful way or if they were able to destroy sufficient demand that they were not able to do that that the imports they were able to obtain over the course of the last 4 months were sufficient to meet those needs. Certainly from the outside looking in, we know that they stopped exporting refined product. I think that was about a million and a half barrels a day or thereabouts that absolutely disappeared and as a result they did not need to bring in crude oil for. We know for certain that they did make meaningful efforts to change demand profile inside the country that people were not driving as much that people were working from home but regardless with that disruption in supply we were forced to draw in reserves and so countries like the United States like Japan and certainly a number of European countries all contributed to that effort and I think really put us in a situation where we avoided the worst of the consequences of this. Arguably, absent those reserves, we'd have seen Brent and WTI, I think, well above $150 and maybe headed towards $200. But feels like we were able to save off the worst of that and now are back in a position where crude oil is moving again and as I said at the beginning, well, I think prices are a little too low and probably will inlect back upwards again. We're going to avoid the worst of the economic consequences that could have come.

There are a number of people who publish data on the situation in China. I think some of that is observable via satellite that they can see stock tanks. Subsurface storage gets a little more difficult of course to understand, but I think people feel like they have some reasonable amount of visibility into the picture there. I would say that's probably why I couch the comments around how much they actually drew down their inventory. My sense is it's relatively little given what I've read, but I don't know that we have absolute evidence around that. I don't know that those numbers that are out there are 100% verifiable.

That's an interesting question. I would certainly say that the last four months have demonstrated that a supply chain choke point like the strait is a pretty meaningful card to be able to play. And of course, that's not the only potential supply chain constraint. When you think about seaborne product transit, there are probably six or seven potential places that you could leverage that sort of intervention and deliver some sort of consequences on a global basis. The Strait of Hormuz for sure, the Suez Canal, the Panama Canal, the Strait of Taiwan, the Strait of Malacca. So there's a handful of those. And I think there's probably more of a recognition today that having a presence in those straits, some ability to maybe intervene there can have significant consequences globally. Maybe you couldn't completely interrupt something like crude supply to China, but my guess is you could put a pretty good dent in it if you were looking at those waterways as places that you could intervene. If you think about the Strait of Hormuz that was 20% maybe going into the conflict now with the East West pipeline in Saudi with some with another workaround in Oman you have some other options there but it's still pretty meaningful and I would say the same for those other waterways. There's going to be not an insignificant amount of crude that might pass through some of those. The Suez Canal would be a big deal in terms of the East West pipeline in Saudi. I do think there is an opportunity to leverage that sort of intervention as a means of coercing an outcome that you might like to see. As a result, I remain of the opinion that a strong presence on the sea is critical as we think about the long term and I certainly think the US has to be cognizant of that in terms of the scale of our navy and our ability to demonstrate power in all of the seas.

We're fortunately in a very fantastic position when it comes to crude and natural gas. We've put ourselves in a very strong spot there. The shale revolution onshore North America has moved us from being a meaningful importer of those products to now being a meaningful exporter of those products. Certainly the largest producer of crude oil anywhere in the world and largest producer of natural gas and a meaningful LNG exporter, largest exporter of propane. So you think about those things and I feel like we're in a pretty good spot there. We have not built meaningful refining capacity onshore North America in a long, long time. I think there's finally news that we're going to build a new refinery here in the United States in the coming years, which is exciting. I think that's important for us to continue to move forward on. But critical minerals, that's definitely a situation where we've got ourselves in a bit of a challenge. It's something we've not been out in front of. And if you look at where that supply chain is centered today, it's on the other side of the Pacific Ocean. China obviously has a meaningful amount of control, not only over the minerals themselves, but even more particularly the refining capacity for those. The ability to turn those into a useful product at the end of the day. You think about the rare earth magnets that we need for even specifically our military world, whether it's an F-35 or a submarine. They all contain rare earth magnets and the supply chain for those is not onshore North America today. So I think if you were to pick a spot that really is a concern looking forward, that is it. You've heard the administration talk about working hard to rectify that. We're trying to get some mining capacity opened up here and maybe work on some control of that supply chain with friends and allies. But we've got a long road in front of us to get that done and then ultimately build the refining capacity to go along with that. So certainly would be the concern I would highlight.

Well, that's a good question. It's certainly not a part of the world I'm directly familiar with, but I would say that we've probably been in an advantaged situation where we've had the necessary capacity to meet our needs here. And that combined with that, we've had some number of states that have ultimately chosen to import that product. If you look at California, they've gone from a situation where they had north of 10 refineries to today there might be six left running there and there's a few more that may be closing imminently. They import a meaningful amount of their refined product along the east coast today from offshore. Typically Asia would be the source of that. You think about the United States over the last 4 months being relatively insulated from the situation that was playing out globally. That was true, but not for every place in the United States. That certainly was not true for California. They rely on Singapore and South Korea for refined product and there was obviously interruptions there given those refineries were not receiving inbound crude. That puts their economy at risk. The rest of the country I think generally in pretty good shape. We have sufficient refining capacity here to navigate the needs of jet fuel, diesel and gasoline. We've seen prices elevate, of course, because of those are globally traded commodities. Those can just as easily be loaded on a ship and sent elsewhere in the world as compared to being consumed here in the United States. And so we've seen gasoline prices really crack spreads at the refineries push up to strong economic levels, maybe some of the strongest they've seen in quite some time. I don't know that that's been a tremendously high margin business over longer periods of time and so maybe there just hasn't been an economic incentive there to build more refining capacity but at least from my sense we haven't had a huge need for it anyway. We've had access to adequate capacity onshore the United States and so hasn't really been that economic signal to go ahead with that construction.

That's an interesting one to me. I could certainly see some case being made for that. But I think as you've said, China's a relatively wealthy country and their ability to access crude oil. I think not hugely changed by the outcome in Venezuela. I think they find that crude elsewhere. Brazil has become a big supplier to China. Now I think we've seen that supply chain grow meaningfully over the last little while. So there are always other ways I think to get crude oil for those who have the economic wherewithal to do so. There's always going to be a willing seller for those barrels of oil as long as the person on the other end has got a checkbook. There is something to be said for locking up some additional heavy oil capacity for use here onshore the United States. Our refineries are definitely geared towards a slightly heavier blend than that which is produced in the Permian by default. We produce a lot of light sweet crude onshore the United States. California probably being the one exception to that. And certainly that state has not done anything to encourage growth in oil production there. And so when you think about a source for heavy barrels for our Gulf Coast refining capacity, Canada's definitely one of those places. They produce a fair bit of heavy oil there and I think as a strong trade partner to the US supply a meaningful amount of that crude but Venezuela definitely represents another option. I think the numbers show them as holding maybe the largest oil reserves in the world or if not it's up there. There was probably some consideration around access to that product over the long term. I think if you think about the two pathways, different pathways I guess that China and the United States are going down, they are diverging for sure. You've got here in the United States a drill baby drill mentality. We are self-reliant in natural gas and crude oil and so not unreasonable to have our economy based on that sort of energy supply for decades going forward. In China, you've gone from a situation where if you backed up to maybe 2000 or so, they produced 70% of the crude oil that they consumed in China. Fast forward to today, they're now importing 70% of the crude oil that they consume in China. And so I think what you're seeing over there is a drive to electrification with the goal of having control over their energy supply just like the United States does. We have for all intents and purposes control over the entirety of the energy stack that powers our economy on a daily basis. That is not true in China today. They import a meaningful amount of crude oil and even despite all the coal production they have there still import a meaningful amount of coal. I think largest importer of coal anywhere in the world today. That probably changes with time, but they are rapidly moving towards an electrified world as opposed to an energy economy that's powered by oil and natural gas.

That's an interesting question. I'm not terribly familiar with the geology across China. The Daqing oil field, which was kind of their big oil field, I don't know if there's an unconventional resource attached to that. I don't know if there is real shale potential there. I have a hard time believing that if there was, they wouldn't have worked hard to develop that by this point in time. Horizontal drilling and hydraulic fracturing technology are not things that they couldn't have accomplished or certainly found partners to help them accomplish. So that says to me, and I apologize for my lack of familiarity with that, but that says to me that that resource opportunity is probably not there at the same scale it was in the United States. And so they've had to pursue this other path.

So as we move from a very conventional type reservoir meaning large pore space very easy for a molecule of oil to work its way through the rock and ultimately find its way to a wellbore to now these tighter unconventional resources that we work on. We're dealing with very different rock. If you could shrink yourself down to the small enough to find your way into a crack in the rock in the Bakken formation in North Dakota and you were to sit there and stare at a square foot of rock for 24 hours, about a tablespoon of oil would come out of that square foot of rock. And so as we've moved to developing these unconventional resources, we've moved to drilling horizontal wells. Now, a well that might be two or three or even four miles long underground, a horizontal pipe, and then creating this series of cracks parallel to that or perpendicular to that so that we expose ourselves to meaningful square footage of rock, millions of square feet of rock that ultimately turns that into a productive well. But at the end of the day, the oil is still bound up in these very tiny little pore spaces in that rock and its mobility, its ability to move through that rock to a fracture is really not that great. And so what that ultimately means is that if you were to look at a cubic foot of that rock after a period of time, we'd have recovered about 10% of the oil out of that. And the rest of that oil is just stuck there. The space in that rock is so small that there's just not enough energy there to push that molecule towards the fracture. There will be ways to enhance that recovery. There will ultimately be some technology developed that enables that oil to be a little more mobile. I think surfactant chemistry is probably a logical place for us to chase down. In fact, I think there's a meaningful amount of work going on there today that will have us find some sort of chemistry that we can introduce to the reservoir that makes that oil far more mobile. That means that we recover 20% instead of 10%. If that were to happen, the cost of energy in the United States is going to plummet overnight. We have access to so much additional resource sitting in the rock today that current technology just doesn't allow us to recover. The cost of producing a barrel of oil would drop pretty significantly. That would be huge for us. But that's a big problem and it's an expensive problem to tackle. So I think that's a problem the government is working on today. Certainly as you think about the national labs and their capabilities, these are the kinds of large problems that they can be focused on that could meaningfully change the cost of energy and ultimately the ability of the United States to reshore manufacturing and be highly competitive at things like that literally overnight. If we crack that nut.

Canada's been a little more challenged situation. They've gone through a decade of national leadership that wasn't hugely supportive of the oil and gas industry. That has changed now. They've elected a new prime minister up there who I think is a little more pragmatic about the role that Canada's natural resources play both for the country and globally and as a result a little more supportive of additional infrastructure being built specifically pipelines and export capabilities along the west coast of Canada and maybe even the east coast down the road. We'll see. So they have but regardless they have definitely benefited probably not to the same scale they should have over the last 10 plus years but definitely have benefited. There's meaningful unconventional development in Canada specifically the Montney and the Duvernay formations but there are whole resource plays in Canada that don't have a drilling rig in them today. Up in northern British Columbia I know of places that have already been tested for the presence of natural gas. We know it's there. The resource is in place. There's just no need for it today. There's no place for it to go. We don't have enough LNG export capacity off the west coast of Canada to really participate in the Asian LNG story at this point in time. I do hope that continues to change. Canada shipped its first LNG cargo last summer sometime I think it was and there are a few more projects firmed that will get to the finish line. But if you compare that to the scale of what's happened in the Gulf Coast of the United States, it's a small fraction of that. And it really is too bad. But certainly I expect positive things to continue to happen there. It's going in the right direction. Mexico is a little bit more challenged story, not without some broader challenges in the country, and those challenges certainly play out in Pemex as well. And so I don't think you've seen quite the step forward there. In fact, arguably Mexico has gone a little bit backwards in terms of their production capabilities in the country. Hopefully things get turned around there as well. Certainly they are blessed with resource. It's just I think maybe a bit of a story around management of that and support for that.

I do think that that relationship is going to get repaired. I do think it gets back to a better place. The two economies are just too intertwined for that not to be the right path forward. If you think about the capabilities of the two countries together, they are certainly meaningfully greater than the two countries apart. Even if you're the United States, and of course from a population standpoint, almost 10x the size of Canada. But if you look at the resource availability in Canada and how that aligns with what we aim to do here in the United States, it just makes a tremendous amount of sense.

Thank you for your service, Reed.

I mean, there is, but it's an incredibly expensive way to move crude oil relative to a pipeline and frankly just not as safe. If you think about reducing the impact of every barrel of oil or MCF of gas we produce, and I'm absolutely a proponent of doing that. I don't think that they're going away anytime soon. But we have to recognize that for every dollar's worth of benefit that oil or natural gas brings to the table, it does a nickel or dime's worth of damage, we ought to be working on everything we can to minimize that nickel or dime's worth of damage, maximize the benefit that it brings to the global economy. One of the ways of doing that is to move oil by pipeline rather than by rail. It's the safest way to do it and it's certainly the most economic way to do it. And we ought to find ways to permit and ultimately build infrastructure here. That doesn't matter if it's a pipeline or a power line or whatever the case is. The well-being from an economic standpoint of our country going forward is predicated on the ability to build big stuff. And we've gotten a little bit stuck on that of late. Pipelines are a part of that puzzle. Not the only challenge that we face right now, but we've got to get to a place where we can do those sorts of things.

I don't know that it does necessarily. I think if you look at where much of the growth for oil and natural gas is going to come from, it's actually not going to come inside of North America. If you think about the statistics today, we are amongst the lucky 1 billion. If you live in Western Europe, if you live in Canada, the United States, South Korea, Japan, Australia, New Zealand, wealthy countries like that, you're amongst the lucky 1 billion. You consume on average 13 barrels of oil per person per year. In the United States, that number is about 20 barrels of oil a person a year. It's a little more than that, even in Canada, being a very large country with long distances to drive. If you're amongst the unlucky 7 billion people who live scattered around the rest of the world, primarily in Asia and sub-Saharan Africa, you consume on average three barrels of oil per person per year. And as I like to say, there is no path out of poverty without access to energy. And so where you're going to see growth in energy demand is going to be countries that are working hard to lift themselves out of poverty to get their citizens into the middle class. If you look at South Korea as an example, and it doesn't take very long over a period of about 40 years, their energy consumption went up by a factor of 15 times. 15 times as they moved their population from an economically challenged world to a middle class and arguably relatively wealthy world. In China, that number is only about four or five times right now. They're in the middle of that economic S-curve. But the energy needs grow right along with that. And so I think if you look at where energy demand is going to be taking a meaningful step up over the coming decades, it's going to be happening in places like Asia, India will be a big spot and then ultimately sub-Saharan Africa. So I don't know that the oil necessarily has to pass through the United States to accomplish that goal. Canada could certainly build pipelines to its west coast down to Vancouver for example or out to Prince Rupert, export oil there and do an immense amount of good globally and I think also particularly do an immense amount of good for allies of North America countries that could be very supportive of us and align with us as we seek to support open democracies and open economies around the world. One of the ways that we have to do that is to ensure access to abundant, affordable, reliable energy and we can be a major player in that regard. And so I think it is a real opportunity for North America as a whole. And whether those barrels leave by the Gulf Coast or leave off the west coast of Canada, I think is probably neither here nor there, but serves both of our interests well on the global stage.

I would say that first and foremost, it's going to be the least expensive way that they can achieve that. They are not going to spend dollars that they don't have to energize their economy. Often that means coal as a starting point. That is a very inexpensive fuel source. It's easily stockpiled. You can pile it up outside. It doesn't need special tanks or anything like that. And you could put six or nine or 12 months of it out there and have that ready to go and for all intents and purposes insulate yourself from challenges like we've had over the last 4 months. So you often see economies leveraging coal as a great starting point for both industrial heat combusting it for manufacture of product but also as a starting point for generation of electricity and I don't think that probably changes hugely going forward. You still see that in China. Even last year 2025, there were permits for 160 gigawatts or sorry, applications for permits for 160 gigawatts of coal filed with the government. They didn't approve all of that, of course, but they still approved a not insignificant amount. In the first quarter of 2026, another 51 gigawatts of permit applications for coal fired power in China. So as much as you hear about this transition away from a coal based economy to something else, they are still burning and consuming an awful lot of coal in China. The same will be true in India. They are absolutely a coal consumer going forward and I think that will be true in other places as well. I do agree that economies will get electrified sooner than they had been in the past. But electrifying an economy is not easy. If you look at here in the United States, our ability to maybe I should say inability to build high voltage transmission lines. If you plot a graph of miles of high voltage transmission built over the last decade and a half, that line's been going on a downhill slope year after year, I think last year it was 500 miles or something like that. It is not easy to electrify an economy given the challenges in building a grid. China with a state-led government and basically the ability to overrule any private property rights means that if they want to build a power line across the country and they've built I think 11 ultra-high voltage power lines to carry power from the west where they have all of the wind and solar to the east where all of the demand is. If they make up their mind to build one of those power lines they just go ahead and do it and nobody stands in the road of that. If you're in a country where you're working towards an open democracy and people have the right to stand up and say, 'Well, you know, maybe I don't support that.' That starts to introduce some challenge around electrifying an economy. And so, I certainly believe the world's going to get more electrified. I think about 20% of energy today on a daily basis is consumed in the form of electricity. By 2050, I think forecasts suggest that number is closer to 40%. China's already at 30%, they'll probably be over 50% by that time, but I don't think that represents necessarily the trajectory of every country going forward. I'm 55 years old this year. Oil, gas, and coal provided about 85% of global energy the year I was born. Today, oil, gas, natural gas, and coal provide about 85% of global energy. So the amount of energy the world consumes has gotten larger. If you look at that numerically, we've held the percentage flat, but there's no new source of energy yet that is even meeting all of the demand growth that is starting to erode market share. And I think that's going to be true for some time to come yet.

That's an interesting question. You know, I'd say there's a lot of things we don't debate, but here's one I had on stage recently. The question was, is the last barrel of oil that's going to be produced on this earth the cleanest barrel or the cheapest barrel of oil? I believe that's going to be the cheapest barrel of oil. I think as we've just talked about, countries lifting themselves out of poverty are out seeking low-cost sources of energy. They're going to buy the cheapest barrel. They're not going to care about the carbon footprint of that barrel of oil. And so, while I don't know exactly when peak oil consumption will come, it's probably out a ways. We're going to get to 130 million barrels a day of global oil consumption or something. And then we're going to start to tip off the back side of that at some point in time. The available market is getting smaller and smaller. The supply, I think, will remain abundant. And so, the barrels of oil that end up getting sold into that are going to be the cheapest barrels of oil. And so I think I probably have colleagues that will disagree with me on that.

I mean I guess hypothetically that is possible. But if you think about certainly where the lowest cost barrels of oil come from today, they are not in places that worry at all about the impact of producing that barrel of oil. And I doubt that's going to change hugely going forward. There will be economic drivers to continuing to produce that oil for some countries. I think countries in sub-Saharan Africa where that's a meaningful part of their economy. Other countries will have moved beyond that. And so my guess is those two things aren't going to be aligned and it's just going to be a cheap barrel of oil. Might still be a dirty one.

I think that if you look out a year's time from now, I'm not going to pick an oil price or something like that. I'm going to predict that we are going to have seen over the last 12 months a very different conversation around how countries are thinking about energy. I think the last four months was a large enough disruption that if you are a country that relies on imports for your energy supply, you are going to over the next 12 months have a very in-depth conversation around the energy stack that is going to power your country going forward and what you can do to build resilience into that. I think countries like Japan, which is an island and relies on nuclear for electricity, but imports all the rest of its energy, is going to be thinking very differently about its energy supply going forward and how the Middle East plays a role in that or not. And I think that'll be true in some Asian countries. I think that'll be true in Europe, who I think is maybe set up for a pretty dire winter situation. Natural gas storage levels are at significant lows headed into the summer. If it's a cold winter, it's going to be a tough winter in Europe. And I think that brings to the surface some real honest conversations around energy security and how that ought to be dealt with and how areas are going to think about that differently going forward.

That's an interesting question. I think it still will. While the need for OPEC has maybe gotten a little bit smaller, they still are an important factor in the global price of oil today. And so while it may have changed in size and scale and membership, I still think it probably exists in a decade's time just with a few less countries in it.

I think the most important takeaway in any conversation around energy is that energy policy has to be a global conversation. You cannot make energy policy sitting in a glass bubble thinking only about the world that is immediately around you. It is a far bigger picture than that. And certainly for the friends and allies of countries like the United States, there are people out there who are heavily reliant on how you frame energy policy. And I think we've had some energy policy in places go desperately the wrong direction. I would point to Europe as a place that has just gone way down a path that I think was a huge mistake that is hurting not only their economy but ultimately the well-being of humanity over there. And I think we've got to be smarter about that. I think the conversation has to be a better one around energy policy. And so I hope that as people think about that and converse with our elected leaders around that, that they remind them that it's a much bigger picture than just their state or country.

It was a pleasure. Thanks for having me.