What's Driving the U.S. Energy Outlook?

Policy and tech are upending global norms and affecting pretty much everything. The outlook for the energy industry could be especially chaotic. In this episode, Tomi Dania, regional director – Americas for KBR Advisory Consulting, shares his thoughts on the big challenges and disruptions — like tariffs, executive orders, artificial intelligence and more — that are driving the U.S. energy outlook and how they could affect the global energy transition.

Transcript

IN ORBIT: A KBR PODCAST

Season 5, Episode 6

“Tariffs, Executive Orders, AI, Oh My! – The State of Energy in the U.S.”

DISCLAIMER

The views and opinions expressed in this podcast are not necessarily those of KBR or its subsidiaries.

INTRODUCTION

John Arnold

Hello, I'm John, and this is “In Orbit.”

Welcome to the podcast, everybody. We're just so pleased that you're checking in with us and staying in our orbit. If you're a longtime listener to the podcast, you know that we talk a lot about the energy industry, from sustainable energy technologies to decarbonization solutions to energy transition and energy security and a whole lot more. You've also heard us talk about the energy industry's ebbs and flows. It's a cyclical business, volatile, some would say, easily affected by outside factors like war, pandemics, natural disasters, disruptive technologies, and of course policy.

Well, right now, a hundred-some-odd days into the current U.S. administration, we're seeing a lot of that play out in real time, and that's what we're going to be talking about today, specifically how policy, technology, and other factors are driving the US energy outlook and what we can maybe expect going forward. And I'm excited to welcome to the podcast today Tomi Dania, regional director–Americas, for KBR Advisory Consulting for the Sustainable Technology Solutions business. Welcome to the podcast, Tomi.

INTERVIEW

Tomi Dania

Thanks, John. Appreciate it. Thanks for having me.

John Arnold

Oh, it's an absolute pleasure to welcome you. Before we get started in talking about the energy landscape, I wonder if you could just tell our listeners a little bit about yourself. We want to give people a chance to get to know you and about your career and how you landed at KBR.

Tomi Dania

Yeah, no, absolutely. So as far as my background, so I have a very long journey that brought me to where I am now. So I'm originally from Nigeria, born and raised. I immigrated to the United States for college. So I went to the University of Houston, got my undergrad in electrical engineering, eventually got my master's, my MBA from Rice. But I've done a lot of different things in my career. So started off in engineering and then I worked in sales, so I moved over to the dark side. I worked in sales for a bit.

And so I've had a lot of different stints, worked in business development, worked in project management, and so eventually I landed in this role, which has been a very exciting role for me. So I lead our consulting and advisory practice out of the Americas. And so effectively what that means is that we're engaging with private sector and government clients, and we're advising them on anything from how to deploy their capital for new investments, how to develop new projects, how to maximize the potential for the existing assets. So we're providing a lot of project development, investment advising, and just overall advice to our clients in the energy industry.

John Arnold

That's outstanding. And it's great to give our listeners insight into exactly what the advisory consulting arm of KBR does. I'm sure it's quite a journey to be on, especially at this point in time. And speaking of this point in time, there are lots of elephants or gorillas in the room at the moment, just on a geopolitical scale. And chief among them, I think are probably the Trump administration executive orders and the sixth-grade social studies vocabulary word, “tariffs.” Everyone's talking about tariffs right now, and rightfully so. But first I wonder if we could talk a little bit about Trump executive orders as they relate to the energy sector. In your opinion, who are the winners and losers here?

Tomi Dania:

Yeah, it's a good question, John. So if you really think at a headline level what the Trump administration is trying to do, I mean effectively to an extent, they're trying to go back to our roots, and so they're trying to reprioritize traditional oil and gas, but in doing so, they're also deprioritizing clean energy and clean energy investments. There's also a big focus on artificial intelligence and creating the regulatory framework to allow the U.S. to be a leader in AI [artificial intelligence].

And so if you take those headlines and then you take it a step lower as far as the specific industries and sectors that are impacted, and so obviously oil and gas production and exploration. And so with some of those roadblocks being removed, you'll see some more exploration and drilling activity on U.S. federal leases. You start, obviously, the other big one is with LNG [liquefied natural gas]. The previous administration had put a pause on new LNG developments, so this administration has removed that, and obviously the U.S. is a huge exporter of LNG, so that's a huge win for the LNG industry.

I talked about artificial intelligence, and AI needs power, and so there's a lot of power development that will be required. And so you'll see, so I think obviously with gas-powered, gas-fired power generation, nuclear power generation, and so those really are the winners in those sectors. If you look at clean energy, there's a lot in that clean energy space. And I think there's still some uncertainty as far as who will end up being the winners and losers, but I think the obvious ones will be the renewable-based power generation and also the molecules that come downstream of that.

So for example, green ammonia, green methanol, and some of these chemicals that are derived from renewable based energy, you will sort of see a deprioritization of that because previous administrations had created some incentives and some regulatory frameworks, some credits, some tax credits. There was some funding, some clean energy funding that was being provided. So obviously in the short term, I think you'll see less investment in what is called green investments, renewable based investments. There's still some elements in the clean energy value chain that are still uncertain as far as what regulatory and government support will be provided.

So I think the jury is still out on some elements of that, but ultimately, traditional oil and gas is being backed. LNG is a clear winner, nuclear power. And then with renewables, you've seen the EV [electric vehicle] mandates have been removed so obviously with a lot of the push for EV vehicles and some of the credits that were going towards that, this current administration doesn't have a focus on that. You've seen this administration pull out of the Paris Climate Accord, which ultimately came with a lot of commitments and funding and support.

So those have short-term, medium-term, and long-term implications because as other countries and governments invest in some of these more emerging technologies, we face the risk of falling behind a bit. But it's a journey, and I think ultimately we'll see where we end up at the end of this administration and ultimately what the medium term and the longer-term outlook presents itself to be as a result.

John Arnold

I'm interested just to hear your personal perspective, you and your team. In addition to the uncertainty that I'm sure accompanies a period of, I hesitate to use the word “upheaval,” but I guess “uncertainty” is a better word, just because things are happening so fast and fierce. Are you and your team really, is there an air of excitement at all in helping clients, customers navigate this time?

Tomi Dania

Yeah, it's a good point because I mean, for me, the uncertainty is exciting because, now it might not be exciting for some of our clients, but for us as advisors, it's exciting because the energy landscape is so diverse, and even though there's winners and losers today, it's a long term horizon as far as the energy transition and the energy trajectory. So it's exciting because in one given day, we're speaking with traditional oil and gas developers, and we're talking about how they can get the most out of their existing reserves. We still, even though some of these things I've talked about as far as the deprioritization of the clean energy, our clients still have to invest in the future, right?

And so they're still engaging with us because they know this is a long run. This is a long horizon investment case. And so they're still engaging with us to help them understand what are the potentials, what are the technologies of the future? So it's still exciting times for us. I mean, we get to play with a lot of toys.

John Arnold

Well, you were just talking about new drilling leases, and I just read on Reuters the other day, on Friday, April 18th, the Trump administration said it would begin a 45-day public comment period ahead of the development of a new five year offshore oil and gas leasing program, which would potentially include new drilling in the Arctic, and all of that, of course, to maximize energy production. What is your addition, what's your comment in that discourse, and what does more drilling actually mean? Is more drilling better for the energy sector? Is it that simple?

Tomi Dania

Yeah, it's a great question. And ultimately, oil and gas are commodities that are traded in a global marketplace, and ultimately production, it feeds a global demand. And so demand is driven by a multitude of factors, whether it's just GDP [gross domestic product] growth, it's also driven by things like uses of oil and gas. So for example, as you see the ramp up in EVs, that obviously has an impact on demand. You have a cartel of countries called OPEC+ [Organization of Petroleum Exporting Countries], and so it is essentially a collection of countries of producing nations, and they get together to essentially set production limits and targets and quotas in the hopes of controlling the price.

And so the point I'm getting at is you don't simply just open up a valve into a global marketplace. You have to be cognizant of price points, of demand outlooks. And so while removing some of the regulatory hurdles helps as far as allowing clients and operators to continue to explore, look for new resources, look for new oil and gas reserves, you are not all of a sudden just going to see a mad rush into exploration, drilling, and production. Because ultimately, if you look at crude oil, depending on different forecasts you look at, the demand is projected to peak at the top of the decade. So it's approaching a peak and it will sort of stay at that level and slowly trend down as you get more EVs and more renewables.

Gas has a longer-term outlook, so gas still has more legs. So I think the message is, it's as simple as, okay, let's just all go drill and let's just open the wells and the valves and just flood the market because then you have pricing pressures and producers don't want that. And so it's a delicate balance of demand and supply and really tracking the trends. And obviously the geopolitical plays a role in that. We saw that in what happened in the war in Ukraine. And OPEC plays a role in that as far as controlling prices. So I think the message is it's not as straightforward as let's just all go drill.

John Arnold

Got you. That makes sense. We were already discussing the ubiquitous artificial intelligence a moment ago. Every industry is seemingly scrambling to use it, implement it for better or for worse, whether they have a use case for it or not. You talked about ramping up production. What are some other implications for energy and AI?

Tomi Dania

Yeah, so AI for me is one I spend a lot of time studying because the potential is massive. I think a lot of us got introduced to AI with ChatGPT. I think a lot of us use a lot of these chatbots, and there's a number of them in the marketplace. But I think ChatGPT was what exposed a lot of people to the potential of artificial intelligence.

And depending on who you listen to, it has the potential to significantly disrupt workforces, work processes, industries. Now, how much of that disruption I think is anyone's forecast, and different people have different opinions. A number of people project that essentially some of these models will be smarter than the smartest human in just a number of years. And so if you then think about what that means on how we deploy our workforces, how we execute projects, just society in general, the impacts and the use cases are massive.

And so what that means, so then you have to then step back and say, what does that mean for energy? Artificial intelligence is powered through data centers. And data centers are effectively large computing facilities. And if you look at some of these data centers, I mean, they take, the power requirements are enough to power an entire city. So it's massive, massive power requirements. And there's a number of hyperscalers, whether it be Oracle, Amazon, Meta, and they're developing data centers across the country.

So where I sit here in Houston, in Texas, Oracle, I think Oracle announced some plans which has been supported, like I said earlier, by the current administration to start deploying some new data centers. So massive, massive power requirements. And so you start thinking about what are the implications to the grid? Can the grid handle that? And so a lot of these data centers will require dedicated power supply. And so what you're seeing is a lot of these hyperscalers are signing up with power producers and whether it's new gas-fired power plants, whether it's nuclear, because nuclear is lower carbon intensity. And so that's really the impact. And so you're not sort of building a new energy value chain and infrastructure just around data centers.

John Arnold

Interesting.

Tomi Dania

And so obviously there's a lot of requirements about, okay, where do you site these data centers as far as based on the supply chain of power and other utilities. So I think the use cases are massive and endless, and I think it will take a lot of government support to make sure that we deploy this in the right way.

But I think the extent and the scale of AI, like I said earlier, is still unknown. But what's happening is a lot of these hyperscalers, they have to invest. They have to take these bets based on what their view of the future is. And it's still a question of if they're going to under-invest or overinvest, but that's what taking bets requires. You have to take a bet, you have to invest. And so they'll build out the data center capacity, these power requirements that come with that, and then we'll start seeing more of these use cases roll out powered by data centers and obviously with the power requirements that come from that.

It's exciting. It's a bit nerve-racking in some extent because it does have impact to disrupt a lot of industries. But we've lived through different industrial revolutions, and this is frankly another one.

John Arnold

It sounds like there's a lot of opportunity to guide clients of various kinds, whether they're commercial or government, which side of that artificial intelligence value chain they're going to be on, whether they are in need of the data center or whether they're going to be the ones supplying the molecules to help sustain the energy requirements for it. And so I imagine that there's a ton of opportunity for teams like KBR Advisory Consulting to help clients figure out where they fall on that spectrum.

Tomi Dania

Yeah, no, you're absolutely right. So as an example, one example, the DOE [U.S. Department of Energy] actually came out with an RFI [request for information] just engaging the industry, because like you've pointed out, there's a lot of stakeholders in this. There's power, there's the hyperscalers developing the data centers, there's the community, there's impact, there's the construction and operation of these data centers. And so there's this massive impacts.

And so is an exciting place for us to be because we're advising the different players along the journey, whether it's potentially advising the government on how to leverage their federal land and support, like I said, support these different stakeholders, whether it's working with the hyperscalers and helping them identify power options, whether it's nuclear, different nuclear technologies. There's a lot of talk around small modular reactors as a more effective way to deploy nuclear. So I think you've correctly pointed out that there's a lot of opportunities along the different stakeholders where we can play a pretty exciting role. So it's exciting. I mean, this is the future and we're excited to find our niche in this.

John Arnold

That's outstanding. Well, we're going to pivot just a little bit. Even though all of these things are absolutely related, because as you were saying, just the power requirements to run these data centers or to generate enough power to run an AI tool requires a significant amount of energy, which obviously then contributes some sort of environmental impact.

Especially after the brunt of the pandemic, so we're talking 2020, 2021, energy transition was a hot topic. Since then, it seems like a mixed bag depending on where you are globally, from region to region. What's your take on what's happening? Why has the pace seemed to slow around energy transition, and is there a right pace or approach? Obviously not a one size fits all approach. So just wondering if you could describe where do we go next? What's the right thing to do as far as energy transition?

Tomi Dania

Yeah, if you just step back and think about what happened with, like you pointed out, after the pandemic, it was where there was, the pandemic sort of accelerated the pace of the energy transition. And what you started seeing was a lot of investor pressure. A lot of the large institutional investors, a lot of the activist investors were starting to put pressure on companies to have more of an ESG [environmental, social and governmental] focus. And really, a lot of the companies that were sort of pure plate oil and gas were being punished.

And I'll never forget, there was a period in time where NextEra, which is a renewable based utility, had a larger valuation than ExxonMobil. And that was indicative of the times, where there was really a premium being paid on clean energy companies and more the pure play oil and gas companies were being punished. And so that was sort of the pace we want. I feel like that accelerated the pace.

But then you had the war in Ukraine, and what that created was an affordability crisis because effectively you switched off the supply of energy from Russia to the EU. And so we saw energy prices skyrocket in Europe. And so what that showed was, as the name implies, it has to be a transition. You can't just flip the switch from one source of energy to another.

So I think there's been a bit of a level setting right now, and we're actually swinging back the pendulum to where there's now a, like I said, with the current administration, there's a reprioritization of traditional oil and gas. You're seeing a lot of the oil companies where they're also pivoting back to their heritage. Some of them have activist investors that are sort of pressuring them and push them to turn their focus back to oil and gas. And so we've seen the pendulum swing a little bit from right after the pandemic to where we are today.

But I think ultimately it starts from believing in the impacts of climate change and then supporting the Paris Climate Accord. So if you believe that, which I do, if you believe that, we need to control our emissions and try to get them to a level comparable to pre-industrial age. So it starts with that. It starts with a commitment to the Paris Climate Accord.

But ultimately, governments need to incentivize this because companies will always prioritize cash flow and profits and returning profits to their investors. And so you have to create incentives for them to invest in and deploy these new technologies and create these new industries. So I think it starts with that. I think we need to create the right regulatory structure in place and incentivize these investments. And then I think we also need to look at, I felt like we accelerated the pace a bit too much right after COVID. I think we need to take more of a phased approach.

John Arnold

Interesting.

Tomi Dania

We had a couple of good examples, we still have a couple of good examples in the U.S., where there are a number of clean hydrogen hubs that are being developed. And essentially what that is creating is a regional and a local supply chain for clean energy and specifically clean hydrogen. And so you are bringing together hydrogen producers, you're bringing together hydrogen users, whether it's a refinery that uses hydrogen or an ammonia facility that's taking in clean hydrogen, and you are actually facilitating that hub and that structure for all these different players.

So what that also means then is the costs are then being shared, the investments are then being shared, and then the government is then facilitating that and providing some investments and some incentives as well. And so to me, that's the right approach. You start with a phased approach and that hub approach. You get your proof of concept through that, and then you start scaling to more of a global market with global off-takes, just like how we are in the traditional energy and traditional oil and gas. And so what's happened is we've been allowed to step back, reevaluate, but I think now we need to chart, the US government especially needs to chart a course for incentivizing the right pace and the right investment.

And because if we're being real, this is ultimately the future of energy. And I think as you pointed out, there's no one size fits all. We'll need all forms of energy in the future, including traditional oil and gas, and whether that means we deploy carbon capture to traditional oil and gas, we deploy new renewable-based technologies, there's a broad mix of technologies and energy that will play a role in the future.

John Arnold

I'm sure you are seeing a lot of different approaches from clients from various governments. Are lots of entities doing both without throwing the baby out with the bathwater? Are they planning for a pendulum swing back the other way towards more investment in clean energy renewables, things like ammonia and hydrogen? Because I imagine, as you said, you kind of have to plan for the future. So without the benefit of hindsight, are people being cautious about that?

Tomi Dania

Yeah, I think what we're seeing is a lot of our clients are, the biggest challenge really is the uncertainty from a regulatory perspective. Because once you at least have some certainty, you can chart your strategy for your corporation and for your future. And the challenge that's happened is, like I said earlier, we're swinging from extremes. And so you have one extreme where it's completely pulling out of the Paris Climate Accord and then you have another extreme that's sort of batting new federal leases on traditional oil and gas exploration.

So I think we just need some more, we need to meet in the middle with an understanding that it's a transition. And so while you prioritize traditional oil and gas today, you invest and plan for the future. And so it's still early in this current administration. I think we'll still get some more certainty and clarity as the months progress. But what's happening is our clients are ultimately, like you said, they understand that this is, they still need to make investments and study and do the due diligence and understanding of technologies and energies of the future. So that won't stop.

Now, you will see a pause of major capital investments in especially renewable-based technology, but they'll continue their R&D, they'll continue to study, they'll continue in their due diligence. They'll continue to invest in technologies of the future. But in the short term, they might not pour billions of dollars in major capital investments in getting some of these projects off the ground.

John Arnold

Makes total sense. Thanks for that additional question. Oh, for days of certainty and consistency.

Tomi Dania

But like I said, hey, it makes my job exciting.

John Arnold

Sure. That at least is a benefit. Just a couple more questions, then I'll let you go. But let's circle back to tariffs now. They're affecting everything. How are they impacting U.S. energy at the moment?

Tomi Dania

Yeah, so like you said, they're affecting everything. They're definitely affecting my personal portfolio.

John Arnold

Yeah, likewise.

Tomi Dania

But we'll leave that for another day. So the obvious thing is tariffs obviously impact the cost of the supply chain. So the obvious thing is this potential to increase costs in the supply chain for some of our projects and some of the developments we're advising our clients on. But I think to my earlier point, the bigger concern is just the uncertainty. And so if one day you have a hundred plus percent tariffs on China, the next day it's 10% higher. So that's the bigger concern.

I think a lot of our clients, just regardless of where it sits, a lot of our clients just want some certainty and some stability and then they can plan for the future. And so once they know what those inherent costs are to their supply chain, then they can figure out what are the impacts to their projects, and they can then make the assessment of what projects get greenlit and what projects get that capital investment. And so that's the biggest challenge. I do think we'll end up in a place, and I think the administration has already started hinting at the fact that they'll scale back some of the tariffs now.

Where we'll end up is anyone's guess, but I think, like I said, what you need is certainty. And once you get that certainty, and listen, you can't be fully certain because there's macroeconomic things that always come to play. But as much as you can from a regulatory and from a government and from a fiscal perspective, as much as you can get that certainty, then you can plan your capital investments.

So I think the other piece of the tariffs dilemma is the longer-term implications to supply chains. And so obviously what you're seeing is some of these tariffs are leading to back-and-forth trade wars and things of that nature. So what that means is some buyers of U.S. energy could start looking at alternatives. And so China is a massive buyer of LNG. The U.S. is a big exporter of LNG. And so if you start having these trade wars with a lot of your trading partners, what that then means is they start looking at alternatives to secure their own energy. And so that's the longer-term risk with extended tariff and extended trade wars, is that it has the potential to disrupt trade relations, supply chains. And those are long-term implications and that can have long term impacts to some of our industries.

But I do think, like I said, you've started seeing this current administration has been kind of walking things back a little bit. And so I'm hopeful that we'll end up in a sensible place with some stability, and then clients will then have the confidence to start deploying capital on some of their projects.

John Arnold

We'll have to have you back sometime in the near future to maybe revisit some of these topics if we do find ourselves in a period of stability. Tomi, are there any final thoughts you'd like to leave our listeners with before we let you get out of here today?

Tomi Dania

Yeah, no, I think so first of all, obviously thanks for having me, John. But like I said earlier, although there's a lot of uncertainty, for us, it's an exciting time because we get to explore multiple aspects of the energy value chain. We're talking to different customers, whether it's customers looking to invest in some of these projects, whether it's the project developers themselves. So it is an exciting time.

And like I mentioned earlier, the energy transition is a transition. It's a long term transition. And so ultimately I think we'll get to a sensible place as far as the pace of that transition. But it's a great time to be in the industry and it's a great time to be at KBR and deploying all of our capabilities and our legacy and expertise and helping our clients be successful.

John Arnold

Excellent. Well, like I said, I'm going to hold you to coming back and revisiting some of these topics in the near future. But in the meantime, thank you so much for joining me today. Hope you had as much fun as I did, and I hope our listeners got a lot out of it as well.

Tomi Dania

No, absolutely. Any time, John.

CONCLUSION

John Arnold

Policy shifts and pendulum swings, we'll see how it all shakes out.

We want to thank Tomi Dania for his time and energy industry insight and expertise in what is shaping up to be a wild time in world history. I also want to thank my colleague Rebecca Lewis for her help in putting together this episode.

If you'd like to learn more about KBR's advisory consulting capabilities, you can head over to kbr.com and check out what's on offer. If you like what you heard today and have an idea for an episode or just want to say hello, feel free to drop us a line at inorbit@kbr.com.

And as always, thanks to you, our listeners. We hope you get something out of these episodes. We get a lot out of producing them for you. Wherever you are in the world, please know that we appreciate you spending time with us and keeping us in your orbit. Be kind to each other, and take care.