How Goldman Sachs’ Solomon and FedEx’s Smith See Oil and Gas

An energy transition is going to take time. But “it’s a balance,” according to Goldman Sachs Chairman and CEO David Solomon.

“We have to support traditional energy. If we don’t have appropriate [and] secure energy at an affordable price, society won’t function,” he said at the American Energy Security Summit hosted by the Hamm Institute for American Energy in Oklahoma City.

“I think it’s very important for the U.S. that we have energy security. It’s very important that we continue to invest in the industry.”

In an energy transition, “one of the ways that we’re in a better position … is if we have a strong independent energy economy here in the United States. We’ve said publicly that I think we’re all going to continue to finance traditional companies for a long time.”

How to strike a balance between traditional energy and sustainability goals? “There’s no easy answer to the journey that we’re all on,” he said. Goldman Sachs’ clients, “even if they’re in the energy industry, also want to think about the next 10, 20, 30 years.

“How are they evolving their businesses? How are they transitioning appropriately?”

Carbon needs to be removed from the air. But this and other means of reducing the CO₂ in the atmosphere are “going to take time, and it’s something that requires a long-term view.”

Now and in the future, traditional energy is still hugely important. “We have a lot of energy in this world that is necessary.”

As for capitalizing the industry, he noted that the Fed is currently taking comments on new rules that “will make the financing of all activities more expensive and will also push more financing—capital-raising—outside the regulated banking industry.

“So, if you think about energy—[whether] it’s traditional energy or it’s new forms of energy—it’s a capital-intensive industry. …And these new capital rules will make all that lending—and also the hedging that needs to be done to make those capital investments—more expensive.”

FedEx Founder and Executive Chairman Fred Smith said the U.S. isn’t using its energy-abundance ace correctly. Smith, whose international transportation company is celebrating its 50th year, was on the Energy Security Leadership Council during the George W. Bush Administration.

“The prescription we gave, which they adopted, was to, number one, promote the maximum amount of oil and gas production in North America,” Smith said.

“That’s when the [fracture-stimulation] revolution [grew] and—beyond our wildest dreams—we became the most prolific producer, just like during World War II.”

And the U.S. isn’t taking “advantage of it to the extent we should,” he said.

Smith earned his undergraduate degree in economics at Yale before serving two deployments in Vietnam as a U.S. Marine, receiving two Purple Hearts before he was discharged in 1970 and moved on to found FedEx in 1973.

“You’ve got to embrace these free-market principles in oil and gas,” he said. “If you want to use less of it, then incent people not to use it. But let the free market work and produce as much oil and gas as you can.”

Smith is a proponent of a carbon tax—incentivizing those who use it to use less of it.

“No company could be more committed to reducing its environmental footprint than FedEx is,” he said. But the point of its effort isn’t to “greenwash;” instead, it’s just math.

“What we’re doing is trying to become more profitable and more efficient. That’s why we retired MD-11 airplanes and replaced them with [Boeing] 777s. We’ve got the biggest fleet of 777 freighters in the world because they use 20% less fuel.”

With a carbon tax, “if you want to make a capital investment to buy a 777 and use less fuel over the MD-11 and make it into beer cans, everybody wins.”

Stephen Moore, distinguished fellow at the Hamm Institute, said a worry could be that a carbon tax is enacted but the massive web of U.S. energy-regulatory framework didn’t go away.

Smith said, “At the end of the day, the problem is the media business … is built largely around outrage. You develop more outrage, [you get] more clicks …

“So, I just do not think that we can continue to go forward unless there’s some sort of grand compromise.”