Energy Transition and Opportunity in the Oil Patch

The past three years have been a particularly volatile period for the oil and gas industry. The sector has been impacted by the Covid pandemic, during which energy demand crashed and the price of oil contracts briefly went negative. More recently, oil and gas prices reached peaks in response to the war in Ukraine and the tightening of energy supply.

In addition to this volatility, growing pressure to reduce dependence on fossil fuels raises the prospect that the industry will face not only customary market uncertainty going forward, but also eventual structural decline for its fossil-based products.

Katie Mehnert, an ambassador with the U.S. Department of Energy’s Equity in Energy Initiative, takes a look at the challenges that an evolving energy market landscape and anxiety over the future role of the oil and gas industry bring to the industry’s workers and their communities. Mehnert, who is CEO of Ally Energy, a Houston company that seeks to increase equality in the energy industry, also discusses efforts to promote diversity through the energy transition.

Full Transcript

Andy Stone: Welcome to the Energy Policy Now podcast from the Kleinman Center for Energy Policy at the University of Pennsylvania. I’m Andy Stone.

The past three years have been an especially volatile period for the oil and gas industry, an industry where boom and bust cycles have long been an accepted fact of life. In recent years, the industry has been impacted by the COVID pandemic, during which energy demand crashed, and the price of oil contracts briefly went negative. More recently, oil and gas prices have reached peaks, in large part due to the war in Ukraine and the tightening of energy supply. Added to these global events is the reality of climate change and efforts to reduce dependence on fossil fuels. As a result, the oil and gas industry now looks to a future that promises not only customary market uncertainty but also the prospect that demand for its products may face structural decline.

On today’s podcast, we’re going to take a look at the challenges that a changing energy market landscape, the energy transition, and anxiety over the future role of the oil and gas industry bring to the industry’s many thousands of workers and their communities. My guest is Katie Mehnert, an Ambassador with the U.S. Department of Energy’s Equity in Energy Initiative. Katie has held senior management positions in the oil and gas industry and more recently as Founder and CEO of ALLY Energy, a company in Houston, Texas that aims to increase the diversity of the energy workforce and help workers to navigate the energy transition. We’ll talk about her work to promote diversity and about the clear challenges and potential opportunities that the energy transition presents for the oil and gas community. Katie, welcome to the podcast.

Katie Mehnert: Thanks so much for having me.

Stone: You moved to Houston twenty years ago for a job opportunity in the oil and gas industry. More recently, after holding a number of senior management positions in the industry, you left to form the company that eventually became ALLY Energy. Can you talk about our experience in the industry and why you chose to stake out on your own to form ALLY?

Mehnert: Yes, I landed in Houston, Texas just before the Enron collapse, so I got to be a part of the Enron scandal, which was great as a young person getting into the industry — quite the eye-opener. And many years later, I got out of the power and utilities and trading part of the sector and into oil and gas. I went to work for Shell. I worked there for a number of years and then went to BP. And it was really exciting. I’m actually a trained journalist by background, a Communications major, but I managed to stake a foot in my career at both companies in safety — safety and environment. And so I had the chance to see the behavioral impacts of the workforce in higher-hazard operations.

So I decided to leave because first and foremost, I think that I’ve been a closet entrepreneur my entire life, and most people have said, “You probably should go out on your own and do something in the world.” But secondly, it was the realization that I wanted to help the industry change its culture and transform the workforce. And I saw transformation of the workforce through the safety lens but recognized that at some point, what gave us great safety performance was diversity. And I don’t just mean female and males. I mean diversity of thought, diversity of background, diversity of ethnicity, right? All of those intersections. So the recognition of that, I said, “If we can get at safety, we can get to zero, zero harm, we should be able to address the environment.”

So I was on a plane. This is well documented. I was on a plane between London and Houston when I was working at BP, and a man struck up a conversation and asked me what a pretty young lady like me was doing in a dark and dark and dangerous business like oil and gas? And up until then, to be honest with you, Andy, I had never, ever, ever been spoken to in that way. I hadn’t come across that, but I’d heard a lot about that. And I started to think about it. I’m one of not many women in the room, so it hit me then and there: “You are the problem, sir.” And maybe it wouldn’t be dark and dangerous if it were diverse, if it were more representative of the communities we serve.

So I scribbled a bunch of gobbledygook on paper napkins. That is how these things actually happen. They were on cocktail napkins. And I managed to drink four glasses of wine, which was probably not a good idea, but that is a theme in my business. I tend to get great ideas from a few glasses of wine. And I stuffed those into my bag, and it wasn’t until I left BP a couple of years later that I found them, and I said, “I should talk about this with some friends.”

So I did that. I socialized the idea to a good friend of mine who was the Head of Diversity and HR at Halliburton, and she said, “I love this idea. Let’s do it. Let’s go create this community, this platform where we can bring together energy professionals and attract new talent.” And so I took the opportunity to take a package at BP right before oil’s epic crash in early 2015. I left in 2014. I had about six months off, but it was the perfect timing for me to start testing the waters on this concept. And it was also equally challenging to get my husband onboard, because he is a member of the oil and gas industry. He is an executive at Baker Hughes in Legal. And I had to convince him, “Hey, Honey, can I go start this thing?” And the rest is history. We’ve been in existence for eight years at the end of this year.

Stone: So today you’re also an Ambassador with the Department of Energy’s Office of Economic Impact and Diversity, and you were relatively recently appointed to the National Petroleum Council by Energy Secretary Jennifer Granholm. What’s your mandate in each of those roles?

Mehnert: First of all, the DOE role as an ambassador was a role I took and was appointed into under the Trump administration. But then I was asked to stay on board, and obviously the remit has changed a little bit. The federal government recognizes and sees that STEM talent and a diverse workforce is important for energy security. We need qualified, capable talent across all disciplines, and we want to make sure that we are engaging the full workforce. And believe it or not, that’s actually something both the Democrats and the Republicans can agree on.

So for years, this equity and energy initiative has been underway, to look at how we bridge pathways between industry and government, academia — how do we create partnerships? How do we accelerate what’s needed to build this energy workforce for the future? So that’s the first piece, the energy to equity.

About six months ago, I got a letter in the mail. It’s one of those things you touch and say, “Is this actually signed by someone?” It was addressed to me from the Secretary herself, asking me if I would serve on the National Petroleum Council, which is about 200 of the top CEOs in oil and gas. The National Petroleum Council was formed under Truman, so it has a remit to advise the Secretary on key issues.

So this year, in fact earlier this morning, I had my first morning meeting. We have a greenhouse gas study, and I am going to be serving on the task group that is looking at society, social considerations, environmental justice — how all that kind of fits in and obviously the workforce piece, as well, into this GHG study. So I’m really excited about the opportunity to serve our country. I jokingly tell people, “I’m not being paid for this work. I’m actually a taxpayer.” So I’m paying to do this work. But it’s great work. It’s serving our government and our country at a time when we really need sound, balanced energy policy. And the more that we can do to get industry — executives and leaders and the workforce — into government, into that process, I think that will help drive a better future when it comes to policy-making.

Stone: So the last few years have been particularly volatile for the oil and gas industry, and I mentioned this in the intro. We have had the pandemic, the war in Ukraine — all this has impacted energy pricing and demand. We often hear about how this volatility impacts workers in the oil patch, in the field itself. But how is this volatility felt in Houston where you live, which is the commercial center of the oil and gas industry here in the U.S.? What has been the impact on the city and on employees in the industry?

Mehnert: Well, the pandemic was a very difficult time for the oil and gas industry, I believe in the field and here at the commercial center, in the heart of the energy industry, Houston. One of the things, though, I think that we did really well in the pandemic itself is there was a lot of learning from the previous dip. The previous bust we had in 2015 was really an opportunity for us to innovate. We started asking the questions of what kinds of things do we need to do differently? What kinds of technologies do we need to employ?

I remember when oil prices hit fifty dollars in 2015, and the world was coming to an end. And then I do remember that fateful day in 2020, when oil prices went negative. And companies did a good job, I think, at trying to maintain and survive that period of volatility. But we all knew the world stopped. The world stopped for ninety days. We were in lockdown for ninety days. The skies over China were clear, the factories were not working. We weren’t using energy, right? But at some point, energy demand increased, and we know about that because we’ve seen obviously the war in the Ukraine, and we’ve also seen the comeback from the pandemic.

So it is a cyclical business. It’s one that my father told me, “Do not get into it,” because he was a victim of the 1980s crash. But I love the oil and gas industry. I love the energy industry because what we do is we drive a productive future for people. And it’s an exciting time. And I think that if I look back on the last few years, the volatility absolutely is there, but huge opportunities, I think, from a workforce perspective, particularly because we are under-resourced.

Stone: So you support rapid decarbonization, and you also support an all-of-the-above approach to tackling the energy transition and climate change. Can you define the “all-of-the-above” approach as you see it, and how it does or does not align with how the oil and gas industry defines or envisions the energy transition?

Mehnert: I like to tell people this period in the history of energy is like a pile of spaghetti and meatballs. So everybody has an opinion, right? That represents all of the spaghetti. If you want to define things, you can define them as, you know, we hear “energy transition.” We hear “energy transformation,” “energy expansion.” Words really matter. They really do, in some cases, define the lines between what’s in a scope or out of a scope. I see it as all necessary, because at the end of the day, we need energy, and we need to reduce carbon emissions. We need to work towards a cleaner future, and we’re not there. We’re not there, and the options that we have on the table give us the opportunity to get to that decarbonization faster.

Now if you look at the oil and gas industry, obviously there’s a big discussion about adjacent technologies — CCUS, geothermal, hydrogen — absolutely a huge opportunity for Houston. But Houston is attracting companies that are not in the traditional oil and gas space, that are in the industries around solar and wind. I think that’s because of Texas’ favorable business environment, and also this is the energy capital of the world. This is where Energy 1.0 started, and it’s where Energy 2.0 is going to continue.

So I do agree it’s an “all-of-the-above” approach. We need all forms of energy, and we need all kinds of talent to come into the market to help us deliver that energy for the future.

Stone: That brings me to the next question. We mentioned before the uncertainty in the industry. You said quite clearly that your father said, “Don’t go into oil and gas because of the volatility, the uncertainty.” We’ve got now this new element, which is the element of addressing climate change, right? And the idea that potentially going forward, demand for oil and gas is in a structural decline, or will at some point enter a structural decline as people switch to EVs, away from gasoline-driven cars, that type of thing. To what extent is this change viewed, again in the commercial center of the fossil fuel industry, as an opportunity or a peril going forward — particularly the climate issue and what needs to be done to address it?

Mehnert: That’s a really good question. It’s a couple of questions in a question. But what I will say is for over a hundred years, Houston has been at the epicenter of our energy system, and it has played a critical role in the world economy. The city is home to 44 of the 113 publicly-traded oil and gas companies globally. So 14% of our total oil refining capacity is here, and 44% of the petrochemical capacity is in Houston. It’s a huge, huge, huge hub. And I think that what we’re going to see is — and I’m very proud to say this — the Greater Houston Partnership, along with the City of Houston and several stakeholders in industry came together after Hurricane Harvey and developed a Climate Action Plan. And Mayor Turner, who is the current mayor and outgoing mayor next year, was really serious about bringing together industry, the community, economic planners to say, “What does Houston need to look like in the next five, ten, fifteen, twenty years?”

And one of the things that came out of that was a strategy on leading the transition to a lower-carbon world. And Greater Houston Partnership actually has an initiative called HETI. HETI is the Houston Energy Transition Initiative. And what that is going to do for our city is bring all of these key stakeholders together to look at the kinds of questions that you’re talking about. Now if you had asked me five years ago, “Where were we?” We were not there at all. In fact, I think it took several federally declared disasters here, including the pandemic, to kind of wake up the world of business to the fact that, “Hey, we have a challenge, but it’s also an opportunity.” And there’s an economic opportunity.

The capital was not flowing for startups a few years ago. It was pretty slow-going here in Houston until recently, when Houston paired up with Greentown Labs and launched the second installment of Greentown Labs in Houston. So I think you’re going to start to see, and we’re already starting to see an acceleration of the transition, and getting businesses and business leaders on board. And of course the recent policy-making, the legislation that has come out of Congress on the Inflation Reduction Act and the bipartisan Infrastructure Law. All of those programs are things that companies are in line to benefit from.

So I think Houston is positioned very well for the future. We have a good plan, and we’ve got buy-in. And that’s very important.

Stone: I want to ask you, there has been a lot of discussion in this country in recent years about the fate of coal workers and the challenge of transitioning to new careers. I want to ask you, for oil and gas workers, and this tends to be a highly technical industry, with a lot of advanced technical skills. What are their transferable skills? And are there opportunities for these skills most likely in the future in the oil and gas industry as it evolves, or are the skills transferrable to renewable energy? What are you seeing amongst the people that you work with?

Mehnert: Well, first and foremost, I think we failed coal industry workers. I do think, though, that there is an opportunity for the coal industry workforce to enter the clean energy workforce. And I know there’s a lot of discussion about that, not just in industry but at the federal levels and the local and state levels. However, your question about transferrable skills. First of all, the skills are absolutely transferrable. These energy technologies need — we need to build things, right? We need to plan things. We need to construct things.

So that’s going to take the same skill sets that we have in the industry today, so project engineers, project managers, right? Hands in construction and trades. I think where the rub right now is on workforce is how the work is delivered. How it’s delivered, where it’s delivered, and the price. Because oil and gas workers are paid very, very well. They’re paid very well because — guess what? It’s cyclical, and that’s part of the gig. When times are good, they get paid well. When times are not so good, well, there’s no work.

So I think one of the things that we really need to look at is the field work, and what kind of work absolutely needs to be done by a field hand? And what can be done digitally? So there’s a lot of digitization happening across the industry, but I also think with the push for manufacturing to come home to the United States, all the infrastructure that’s going to be necessary to make electric vehicles and electrification happen, there’s a lot of opportunity there. But people are going to be concerned — most — when their pocketbook is hit. Or they have to be skilled and re-skilled.

There are a number of companies that are taking on re-skilling and up-skilling of the workforce. There are a number of renewable companies I see out there that are doing programs. So E&L North America is one. Another one is EDP Renewables, Sunnova Energy. So some of the industry is already addressing this by embracing that the oil and gas workforce is absolutely critical to the future of energy, and taking advantage of the fact that we have that talent.

Now I say that with the caveat that I started ALLY Energy eight years ago. And eight years ago I told the world, I went out right then, and I said, “We need to double down on talent.” And they all thought I was crazy, because we were in a cycle. We were hitting the skids. We were hitting a lull in inactivity. And so we were laying people off. But here’s the challenge: We stopped hiring for almost twenty years because of the ’80s bust. If you start to think about the net effect of the workforce, this is why we’re going to be short. We are short on this because (1) oil and gas work is not work that people necessarily are excited about, and the generation isn’t excited about it; and (2) we stopped hiring for almost two decades. That’s like a generation-and-a-half.

So the pipeline of talent is very thin, and I do see that, though, as an opportunity to galvanize new talent sources from other industries and getting communities involved in this transition. So it’s an opportunity, it’s a challenge — but it’s also an opportunity.

Stone: So how do you attract people if you’re an oil and gas company that’s missing a young generation to replace workers that would be aging out? Do you attract them with being part of the oil and gas industry as we think about it — some new vision for the industry? Or is the attraction going to be to the either renewable businesses of these oil and gas companies, or renewables stand-alone?

Mehnert: First of all, I want to say all of the energy sectors, so this also includes solar, wind, the non-fossil portfolio. All of these sectors are struggling for talent, period. Energy is the most misunderstood topic on planet Earth, okay? But at the same time, we’re keenly aware of our environment and the impacts it’s having on prosperity and wealth. So people are aware of climate change, right? We’re aware that we’re crushing the planet with challenges, but at the same time, nobody is interested in the jobs. And I think part of that is we’ve not done a good job, period, of explaining energy. My kid is 12. If you look at her sixth-grade science education, you will not see a lot about energy, and that is a travesty because these kids need to understand where their food comes from, how do we manufacture things? We don’t manufacture things in this country anymore. We do a lot of export/import.

So we have to really look at how we’re educating Americans and the next generation on energy. That’s first and foremost, and that’s for all forms of energy. Now specific to oil and gas, I’ve got to pitch it. I wrote a piece in 2019 for Newsweek called “Why Big Oil Should Embrace Activists like Greta Thunberg.” And I’ll tell you the ethos of the piece. The ethos is these kids are marching, okay? They’re marching, they’re upset. They’re worried about the future. Instead of talking about the bad, let’s talk about, “Come work for us. Come help us solve that problem. We need you to be here.”

The challenge that we have is the media has said, “The big bad oil and gas industry doesn’t have a role in the future,” and that’s just not true. It absolutely isn’t true. We need these incumbent companies. They have scaled technology. They have knowledge and talent. They have processes and systems. But we also need the startups. We need the scrappies like me and my colleagues at Greentown Labs coming up with new ideas because you can’t say it’s either/or. And that’s where I get back to, “It’s an all-of-the-above approach not just for energy, but it’s an all-of-the-above approach when it comes to talent.

Stone: There’s a strong expectation that the energy transition will also bring energy and environmental justice and greater equity. And the clean energy transition is taking place under a dramatically different set of social circumstances than the fossil energy revolution a century ago. And this really gets to the heart of the work you’re doing with ALLY and with DOE, et cetera. Could you talk about the opportunities and perils for workers in terms of inclusion in the oil industry and in the transition outside of the industry?

Mehnert: You’re absolutely right. Energy 1.0 was created a hundred years ago or so, pre-Industrial Revolution. We were living in different social times. Women, people of color did not have a seat at the table. We are now living in an environment that is completely different, completely different. And so we have to make sure that when we do this transition, that we leave nobody behind. And that also means oil and gas workers. They play a role. They play a significant role in the future.

So I think one of the things I challenge — you know, Secretary Granholm challenged my colleagues at DOE as, “Hey, we’ve got to move. We get it. We’ve got to move as quickly as possible. But we’ve got to do that sensibly.” You look at the war in the Ukraine, and this is a real example, a live example of you can’t switch technologies overnight. Now do I believe that the will of the people will enable a rapid transition? Yes.

We solved COVID in record time. If we are able to bring vaccines to market like we did in the past two years, I do think the next five years in the energy industry is going to be transformative. Do I think we’re going to find the silver bullet? No. But we’ve got to have a pragmatic approach. We’ve got to have what I call “the rational middle.” We’ve really got to look at this as we’ve got to come together, and I think it’s an opportunity for the country to come together and unite. The last several years have not been particularly good policy-wise, politics, the like. This, I think, is an opportunity to bring communities together, industry together, government, academia together to solve the greatest challenge of our generation, and that is the energy future and the environment.

Stone: I want to jump onto that politics bandwagon here for just a moment. Texas recently adopted a law — I believe this law has been adopted. Correct me if I’m wrong, that makes it illegal for government agencies to do business with financial companies that limit investment in the oil and gas industry for ESG purposes. And you were quoted by the local ABC TV news affiliate in Houston as calling this new law “political pandering.” You went on to say that the government has no role in this, and that fossil fuel matters for the state economy, and so do renewables, and Texas leads the way.

What has been the impact, if any, of the politicization of energy and ESG more generally on energy workers?

Mehnert: I think it’s a lot of noise, just like I think it’s a lot of political pandering. It’s hot air. It’s posturing. Here’s the thing — and look, I love my friends in the federal government, both administrations that I’ve worked with, right? All of my fellow Americans. I love my friends that work at the city and over at the state. But at the end of the day, the federal government, all areas of government are behind the times when it comes to industry and reality. And so what I’d like to see is why aren’t we sitting down and talking about solutions for all energy?

The governor of Texas has a unique opportunity. This state is going to take off. It already has, in terms of business and innovation when it comes to energy, period. I don’t know why we have to politicize that fossil energy is for the right, and clean energy is for the left. At the end of the day, it’s energy. Clean energy, green energy, all of these words, like I said before, they conjure up what I constitute as noise. It’s fighting. It’s in-fighting. ESG isn’t going to go away. None of this is going to go away, because at the end of the day, we are not living in a pre-Industrial era. We are living in a post-Internet world, right? We’re living in a world that’s globally interconnected.

So the minute we realize that we’re kind of all in this together, and we need to work together for solutions, and that there are absolutely opportunities, economic opportunities, jobs, the kinds of things that all parties can agree on — we’re going to get there faster. But yes, I see all of that as noise. Do I agree with the SEC and the way it’s handling climate rules? No, but I think it gets back to we need a rational middle in this country. We need to start thinking about solutions, agree that we’re going to disagree, but work towards getting to the middle. We have gone too far to the left, too far to the right, and I feel like the politicians are out of touch with the people, and they are also out of touch with industry.

Stone: So what role should policy and policy-makers play in this energy transition? And particularly in ensuring equity and inclusion in the transition. What’s your view on that?

Mehnert: Well, I think we need to engage. Look, we spent two years behind Zoom boxes. We’ve stopped talking. We’ve been yelling at each other using social media as a mechanism to have a dialogue. Look at Twitter, right? It’s a complete example of a cesspool. We need to sit down and have conversations with government. Government needs to meet with industry. And industry needs to come together. So it can’t just be the oil and gas industry. We need to be sitting together with politicians. We need to be sitting together with colleagues from the power and utilities sector. We need to be looking at this entire value chain because we’ve long existed in our silos, and silos are not —

Stone: Wait, I just want to jump in. I think one argument might be that there has been a strong dialogue between incumbent industries and government for quite some time. I mean, at least for some parts of industry, this dialogue has existed. Are you talking about a different quality of dialogue, then?

Mehnert: Yes, right. But a lot of that has been lobbying. We need to move away from the lobbyists having the conversation to the workforce having a conversation with law-makers on what exactly the work is. Look, if I could sell my company in a couple of years, make good cash, I want to go and work for a government agency and try to transform it from the outside, right? I left the industry because I saw an opportunity. But I see a huge opportunity to get more energy workers, workforce leaders into policy-making roles. Why are the politicians making the rules? These are people who have been in office for what — twenty, thirty, forty years? Are they going to be around when climate change in 2050 and all these targets hit? No, they’re not.

So my argument is we need more people like myself, my colleagues, who are actively a part of policy-making, who can help shape and transform the way we see things from a government perspective.

So yes, you’re right. We’ve had dialogues, but the dialogues have been, “Let’s lobby for special interests. Let’s lobby for this. Let’s lobby for that.” We need to approach this differently, and we need to look at how we’re going to integrate industry with a balance into government, because at the end of the day, energy is the currency of life. My friend Jeff Bridges says this in his documentaries, okay? It is the currency of life. It is the bane of existence. It should be, “It is the heart of our economy.” So it absolutely should be a core competency in our government to have sound policy-makers. And we just don’t have that today. We don’t.

Stone: Kate, I want to jump back as our final issue here, just to something that you mentioned briefly earlier in our conversation, and that’s the Inflation Reduction Act, which is the big incentive package for renewable energy, amongst many other things that are in that package. What impact do you see this having? Does this change things for workers in the oil and gas sector positively or negatively? Any opportunities opening? What’s been the feeling there in Houston?

Mehnert: Well, the feeling is mixed. You’ll hear oil and gas associations that are against the IRA. But then you also hear industry leaders, big, large, incumbent companies — you know, the Shells, the BPs of the world — that have said, “Hey, the methane reductions that are being called for, we’re already meeting those. So we’re not going to be materially impacted.” I think who is going to get materially impacted are going to be the little guys, the smaller businesses, and the smaller mom-and-pop shops.

And that’s the challenge I have, because as an entrepreneur, I’m not in the space of energy services in the field, but I think that there’s an opportunity for us to examine how this impacts the smaller part of a portfolio in oil and gas. Now from a worker’s perspective, I think there are opportunities, because I know there has been money set aside for workforce development. There has also been money set aside for plugging wells, right? So that’s work that’s going to have to get done.

I think it comes down to, though; we have to engage and have conversations about what these things really mean. That’s why I regularly invite my colleagues from DOE to Houston. I go to visit them. We’ve been across the U.S. together. Most recently, we were in Bakersfield, where I think the cleanest barrel of oil exists because the environmental regulations are very tight in California. So I think it’s an opportunity. It’s an opportunity, but we have to have those conversations in order to really understand the impacts.

Again, it gets back to we’ve got to get out from the computer and look eye to eye and have those dialogues and those engagements.

Stone: Katie, thank you very much for talking.

Mehnert: Thanks for having me. I appreciate it.